Step 3: Taxes
You are going to need to pay taxes. There are some taxes everyone has to pay and some taxes that may vary by state. The following just examples and you should meet with a tax professional to make sure everything is included.
- Self Employment Tax- You need to set aside at least 15.3 percent of your total earnings for this tax. This will cover Social Security and Medicare. Most people have these taxes automatically taken out of their paycheck. As a person that is self-employed, you will need to cover these expenses. They may change from year to year.
- Federal Income Tax- This will depend on the amount of money you make during the year. The more you make, the higher the percentage the government will take. Many handymen will need to pay between 15 to20 percent of their total profits.
- State Income Tax- this will vary from state to state
- Additional Taxes- you may be subject to additional taxes and possibly local taxes.
Add up all your taxes to get the total percentage you will owe.
- Self-employment: 13.3%
- Federal Income Taxes: 15%
- State Income Tax 0%
- This brings your total to 28.3%
Step 4: Setting an Hourly Rate
You need to figure out how many hours you are going to work each month. You may spend 40 hours working, but you need to include the time you spend on providing quotes, returning phone calls, driving, and other measures. You may work between 25 and 35 hours a week.
You will not be paid for every minute of your time. You will get paid when working for the customer.
You need to figure out how many hours you can realistically work. You need to have some time for your family.
I aimed to work at least 26 billable hours a week. I had time for personal life and office tasks.
Step 5: Work with the Numbers
Now that you have the numbers it is time to get them to work for you.
- Monthly living expenses =L
- Business expenses= B
- Billable hours=H
- Total tax percentage= T
This is based every month. You rate is L/ (H* (1-T)) + B/H
Example: if you need $5,000 a month to live your and your business expense is $1,200 and your taxes will be around 30% you should plan to work around 32 billable hours.
- Living Expenses : L=5,000
- Business Expenses: B=1,200
- Billable Hours: H=128
- Tax rate= .03
- This will come out to 5,000 / (128 * (1-.3*)+1,200/128 with is a total of $65.18 per hour.
You will need to charge at least $65 an hour to make a profit and keep up your lifestyle.
This formula can help you figure out the minimum rate that you need to charge. This number is often higher than what you were thinking.
Step 6: Evaluate
You now know your monthly expenses and the amount you need to charge an hour.
Is this amount reasonable? Can you charge this rate based on your experience, education, and qualifications? If this seems reasonable you can go make some money.
This amount seems high you need to think about why it is high. Many handymen undervalue their services. Sometimes they may not want to charge that much and other times they do not know how much they are worth.
Do not shortchange yourself.
I did not charge enough and this costs me tens of thousands my first year in business. You need to learn business skills so you can make the money you need. You are worth more than you think.
Be sure to check out the Handyman Hourly Rate Calculator by following the link shown below. This calculator will help you will the math and will show you the common expenses and taxes you are paying. This will help save you both time and money.
The Surrey Handyman
14577 105a Ave, Surrey, BC V3R 1S2