Running the Business · Part 1
Quarterly estimates, self-employment tax, deductions, and mileage: the tax calendar for a first-year contractor
Nobody withholds tax from a plumbing invoice. The first year in business is the year you discover that the $14,000 you owe in April was supposed to have been paid in four pieces during the year, that self-employment tax is a second tax on top of income tax, and that California collects its estimates on a different schedule than the IRS. This lesson lays out the two calendars, the safe-harbor rules that stop penalties even when you guess wrong, the deductions a plumber actually has, and the two ways to deduct the van, with the record each one requires.
What the full lesson covers
- Federal estimates are due April 15, June 15, September 15, and January 15 in four equal pieces; California's are due on the same dates but weighted 30, 40, 0, and 30 percent, so the June payment is the big one.
- You avoid underpayment penalties by paying in at least 90 percent of this year's tax or 100 percent of last year's (110 percent if last year's AGI was over $150,000), whichever is less. In year one with no prior-year tax, the prior-year safe harbor is zero; use it, but bank the real tax anyway.
- Self-employment tax is 15.3 percent on net profit (12.4 percent Social Security up to the annual wage base plus 2.9 percent Medicare) on top of income tax. Half of it is deductible. Set aside 30 to 35 percent of every profit dollar until a CPA gives you your real number.
- The mileage deduction for 2026 is 72.5 cents a mile through June 30 and 76 cents from July 1, or actual expenses; either way, the contemporaneous log is the deduction.
- Federal law now allows 100 percent bonus depreciation and a $2,500,000 section 179 limit on equipment; California allows neither, so the van and the jetter are deducted differently on the two returns.
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More lessons in Setting Up the Business
- 1The entity is a one-way door: why you decide sole owner, LLC, or corporation before the license issues
- 2Sole owner vs. LLC vs. S corporation for a plumbing contractor: liability, tax, cost, and the small claims limit
- 3EIN, the business bank account, and separating the money: the first bookkeeping setup that survives an audit and a lawsuit
- 4City business licenses: every city you work in, the Los Angeles business tax, and the seven-day rule
- 5The insurance stack: general liability, commercial auto, the bond, and workers' comp. What each covers, what each does not, and who will demand it
- 6Sales tax for contractors: materials vs. fixtures. The CDTFA rule most plumbers get wrong
- 7Quarterly estimates, self-employment tax, deductions, and mileage: the tax calendar for a first-year contractorYou are here
- 8Hiring readiness: what has to exist before the first helper's first day
- 9Template: the business setup checklist, from pass letter to first invoice
- 10Template: the insurance requirements matrix. Who demands what, and the certificate that satisfies each one