Hello everyone,

I'm really lost as to how to handle taxes with this large change with my occupation. I'm going from a salaried employee to a contractor being paid by a company that I own 10% of. I was paid as an employee up through April but my paycheck this month will be to me as a contractor.

Do I need to file estimated taxes for June 15th? Does that need to include the taxes on revenue earned by the company I own 10% of?

Any help would be greatly appreciated.

Thanks!

#1;Correct; however it depends; if you are filing as a sole proprietor, partner, S corp shareholder, and/or a self-employed individual,I mean a contractor, then, you generally have to make estimated tax payments if you expect to owe tax of $1K or more when you file your return. If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. You do not have to pay estimated tax for the current year if you had no tax liability for the prior year;y ou were a U.S. citizen or resident for the whole year;your prior tax year covered a 12 month period.




#2;Correct as mentioned above.it is part of your taxable income. If your company files as a partnership as MMLLC,then, technically, you areNOT treated as An EE. You are compensated via guaranteed payments and distributions, and also pick up your share of income or losses via Sch K-1 generated with the 1065 filing. Guaranteed payments, partnership income or losses and distributions are :that you need to pay estimated taxes based on your individual tax situation using form 1040-ES. You'll have to estimate income from the partnership and any other taxable income you didn't mention (wages on your paychecks are generally covered by withholdings by ER, but if not, you'll have to account that), and figure income tax on that. In regards to the partnership income, you'll also have to figure in self employment tax reported on Sch SE which is basically FICA, and runs at 15.3% of self employment income ;you also get a deduction for 1/2 self employment taxes paid on line 27 1040.

I'm filing as a contractor. What is an EE? I will own 10% of the LLC and will be compensated with guaranteed payments and yearly distributions. How can you estimate income that can fluctuate wildly? I have no idea what I'll get for a year end distribution from the company, it might be just enough to cover taxes or there may be some profit. This is all very much over my head unfortunately. I've used turbo tax my entire life with W-2's. Thank you for your answer but would you be willing to simplify it for a layman?

Thank you very much!

asssaid aslongas you have income that isn't subject to withholding taxes, then you probably should be paying estimated taxes; Guaranteed payments essentially function as a form of salary for partners. This income may be subject to self-employment tax, depending on the terms of payment. The IRS treats guaranteed draws as wages and requires members to pay self-employment taxes and make estimated tax payments. If you owed additional tax last year, you may have to make estimated payments in for this year. You must pay estimated taxes if You expect to owe at least $1K in tax for the current tax year, after subtracting withholding and tax credits. You may owe a penalty if your total withholding and estimated tax payments do not equal at least (1) 90 percent of the tax you owe for the current year or (2) the full amount of tax you owed the previous year, whichever is less.
Separate penalties are applied to each estimated tax payment and due date, so you could end up facing multiple penalties . s o if your income varies during the year, then figuring your tax burden using the annualized income installment method will allow you to show why your business should be able to lower or eliminate one or more of the required estimated tax installments. Submitting your justification via this form — if you meet the criteria to submit it — can often get an underpayment penalty reduced or eliminated.Filling out the annualized income method section of the form takes more time than using the quick or regular amendment method, but it gives highly volatile businesses more leeway for errors and holds out the prize of reduced penalties. You should use annualized income when calculating your estimated state income taxes as well.Of course, hiring a good accountant to help you may save you a lot of headaches. And being able to anticipate the high and low quarters your business is likely to experience in a given year can also help you avoid penalties in the future. Publication 505 (2014), Tax Withholding and Estimated Tax