Money · Advice & Questions · Oct 20

How do I stop treating money set aside for tax as spare money?

Money

The $1,200 side-work payment arrived, and I moved $300 into a pot called 'tax'. By Sunday I was looking at it as the money that could replace our broken desk chair.

I'm a US taxpayer with a salaried job and some new self-employed work. No tax was withheld from this payment. The $300 is a placeholder I chose, not a calculated bill or a tax rate anyone has confirmed. I still need to organise the expenses and work out how the extra income fits with the rest of the year.

My partner says the money isn't owed until someone tells us an amount. I don't think that is a good basis for spending it, but I also know a pot with a label isn't the same as a completed calculation. I'd rather find out what is needed than keep an arbitrary amount untouched forever.

How would you turn this into a routine that separates actual spending money from an obligation you haven't yet calculated? I'm trying to make the next payment less confusing than the first.

Discussion

3 community replies

@JulesAfterDark

The unfinished calculation is the next task. Gather the income and expense records before deciding what portion is available for the chair. The $300 label can hold a place while you work, but it shouldn't become evidence that exactly $300 is required or sufficient.

@MorganSays

The IRS explains that [estimated tax may be needed when withholding doesn't cover tax on income, including self-employment income](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes). Its guidance uses the year's income, deductions, credits and other relevant circumstances. A flat percentage guessed from one payment doesn't settle your federal position; state requirements may also need checking.

@TheoInTransit

'Nobody has told us an amount' describes uncertainty, not an absence of cost. You can explain to your partner that you want to resolve that uncertainty before assigning the same money to furniture. That is a practical pause rather than an argument about who deserves a new chair.

How do I stop treating money set aside for tax as spare money?

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