Thanks to everyone for chiming in. SpecialK, did you find these suggestions helpful? This is interesting topic that is applicable to many small business owners. Based on the discussion here, we recently posted a blog article 'Paying the Boss: 4 Tips for Setting Your Own Salary.'

As a sole proprietor, you will file a Schedule C with your income taxes and any business profit will be taxed at your tax rate. You will include the profit or a loss on your 1040. The IRS requires that if you will have a total tax liability of $1,000 or more you must have at least 90% of it withheld from your pay by an employer or you must pay estimated tax throughout the year. If you are operating your business part-time to start and holding another job, your employer will be withholding taxes, but possibly not enough to equal 90%. Also, if you have income from interest, dividends, rental property, etc. that counts in the 90% figure. That said, you can do what you suggest and not make estimated tax payments, but you would have to pay a penalty if you didn't and your total tax equals $1,000 or more. Personally, I prefer not to mess with the IRS, so I pay the estimated taxes.

Payroll taxes and self-employment taxes are the same thing if you are paying yourself. You will only be paying yourself if you make a profit.

How are you structuring your company? Is it a LLC, Sole Propriatary?