I'm the sole income earner in a family of four (my husband is a full time student). My W2 salary is $45,000 a year and there is a possibility for summer work with my job, which could add up to $4200 more in W2 income.=======then you need to adjust w/a on your w4 with your employer. During the year changes may occur to your marital status,income, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances
I also started two 1099 positions. The amount of work I receive through these positions is variable. I didn't receive any income from these positions during Q1 so I did not file quarterly taxes. However, I am thinking that I will need to file quarterly now due to the amount I am earning. I'm up to $2000 so far, so I am thinking I'll likely reach $5000 or more.==>>>>>>In principle, aslongas you are filing as a sole proprietor and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1K or more when you file your return.Also as the amount on Sch C line 29 / 31 is $400 or exceeds $400 you need to fiel your return as a self employer ans also aslongas the amoun ton Sch SE line 2 / 3 is $400 or exceeds $400 you need to pay SECA tax to IRs and can deduct 50% of the tax on your 1040.
However, unless your tax liability on your 1099 income is large , matter of fact you may not pay quarterly estimated taxes to irs/your home state; in my experiences, I know thatthere are tons of self employers that usually intentionally do NOT file estimated taxes to irs/states due to penalties/interest amounts are low UNLESS their net tax liabilities on self employment income are large. The estimated tax penalty is essentially a charge for interest for not paying taxes throughout the year;however, if you want to pay estimated taxes,
My questions are:
1. Do I pay quarterly tax based on what I make from my 1099 position that quarter?======>as said it is up to you;in principle yes. if you want yes you can;however, if you do not want to pay the tax , then you may. I guess your penalties and interest for not paying enough/ no estimated taxes ‘d be low .
2. Say I make $3000 in Q2, do I pay the 15.3% SE tax and then 15% income tax on the $3000, and then if I make $1000 in Q3, pay the calculated tax on the $1000? Or do I have to estimate for the whole year? I really have no way of knowing how much I will earn.=======>>No; when you pay your quarterly estimated taxes, you are supposed to pay for the money you earned each quarter. So, when you make your quarterly payment on june 15, you are paying on the income you had from apr 1 to may 31 of that year. You may base your quarterly payments on what you made the previous year. Say you paid $8K in taxes last year, it means that your quarterly estimated payments this year are $2k (e.g., $8k/4). As long as you pay the same amount this year as you did last year, the IRS won’t penalize you if you owe more than $1k come tax time. This is a much easier way to determine your tax liability each quarter instead of trying to pay 90% of your total expected tax for this year, wha ti mean is that not only IRS but even I guess your home state imposes penalties if you don't pay enough estimated tax. You can avoid these penalties by paying the LESSER , NOT LARGER, of 90% of your total tax on estimated current year income due for the current year, or 100% of the tax you paid the previous year or possibly more, if you're a high-income taxpayer.
However, the rules and regulations that apply to self-employment are the same whether you are self-employed for part of the year or for the entire year from jan 1 or even if you are concurrently an employee. Some tax items may be affected by the business start date, for instance, the amount of deduction for equipment purchases or the maximum pension contribution allowed.Also, the important date is when you actively started to pursue self-employment . Generally, it is to your advantage to collect and claim the small amount of earned income and then deduct all business expenses against it. You will likely end with a loss in your new business and that loss can be deducted from the wages at your W2 job. Also,don’t Forget State Taxes If you live in a state that has an income tax or in other words, a majority of 41 states, you will also need to make quarterly estimated taxes to your State.
3. If I overpay quarterly taxes, will it be refunded after filing the annual tax return?=====>>You do not overpay quarterly estimated taxes , however, you can often get a tax refund on your income tax if the tax you owe on 1040 line 44 is less than the sum of the total amount of the withholding taxes and estimated taxes that you paid plus the refundable tax credits that you claim on line 72 of 1040.
4. What type of penalty is there for not paying enough in quarterly taxes? I'm just curios as to how expensive of a mistake I could make=====>it is very complicated to calculate; Penalties are assessed based on the amount of time you are late. The IRS/your state calculate the penalties by dividing the annual interest rate by 365 days. The result is multiplied by the total number of days the estimated tax payment is late. That percentage is used to calculate the amount you will pay in penalties.
Penalties owed on estimated taxes must be calculated on IRS Form 2210. If you did not make any estimated tax payments during the year, all four payments will be considered late and will incur a late penalty charge. If you paid part of your taxes through the year but was not able to make the full amount due say,you owed $900 quarterly but only paid $700 quarterly, you would incur a penalty only for the amount you failed to pay.
You need to pay both penalties and interest; The IRS imposes a fine if you underpay your estimated taxes. You have to pay the taxes due plus a percentage penalty for each day your estimated taxes went unpaid. This percentage is set by the IRS each year. In recent years, the penalty has ranged from 6% to 8% annually.as said, many self-employers decide to pay the penalty at the end of the year rather than taking money out of their businesses during the year to pay estimated taxes. If you decide to follow their lead, you need to pay all of the taxes you owe for the year by April 15 of the following year. If you don't, the IRS will tack on additional interest and penalties and quickly make it prohibitively expensive to pay late.On your return it’d be charged automatically on tax return software.you need to check it with dept of rev of your home state.