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Old 03-02-2017, 03:23 PM
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Independent Contractor - Calculated Taxes Pt. 2

This is a follow up to the "Independent Contractor - Calculated Taxes" thread posted yesterday.

For a more vivid example of my situation:
1st Monthly Payment (February) - $300
2nd Monthly Payment (March) - $860
No Payment received in January

Do I then perform:
February - $300 x 15.3% (SECA) + $300 x Federal Tax Rate% + $300 x State Tax Rate% = Total to pay Quarterly?
And do the same for March payment as above?
Then take those two new amounts and pay my April 15th quarterly liability?

I will not have estimated income tax withheld from my employer. I received a tax refund this year from my 2016 taxes, which I think means no prior year tax liability. If I am not mistaken, my employer will send a 1099MISC at year end. My question is more so asking what do I withhold during the year to at least not underpay taxes.

Thank you - If possible, please use my example above or similar example; I need the visual. I appreciate all the help.



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Old 03-03-2017, 09:16 AM
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Do I then perform:
February - $300 x 15.3% (SECA) + $300 x Federal Tax Rate% + $300 x State Tax Rate% = Total to pay Quarterly?===>No; you need to report $1160 on SCh C of 1040 line #1 and also claim your biz related expenses on SCh C in part 2 , say your advertising expense is $200 then you need to report it on SCh C in box 8; so The information on your net business income from line 31 of your Schedule C is added to your personal tax return on Line 12; aslongas the amount on sch c line 29 / 31 is $400 or more then you must fiel your return and also if the amount on SCh SE on line 2 / 3 is also $400 or exceeds $400 then youmust pay self employment tax to IRS and claim 50% of the seca tax on yoru 1040 line 27. To pay quarterly estimated taxes, you have to pay estimated taxes if you expect to owe at least $1k(after estimated taxes or refundable/nonrefundable credits that you get on your 1040 ) in federal tax for the year.
However, if you didn't have to pay any taxes last year -- for example, because your business didn't make a profit or because you weren't working -- you don't have to pay any estimated tax this year, no matter what you earn. This rule applies only if you were a U.S. citizen or resident for the year and your tax return for the previous year covered the entire 12 months. the IRS imposes penalties if you don't pay enough estimated tax. You can avoid these penalties by paying the lesser of:
? 90% of your total tax 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





And do the same for March payment as above?=========>No as mentioned above



Then take those two new amounts and pay my April 15th quarterly liability? ========>No, in this case ,plz read above. you need to pay first quarterly estimated tax by apr 15 2017 in this case as you have earned income in jan and feb ; I mean say your tax liability for 2015 was $2K then you simply divide it by 4 and pay$500 each qtr of 2016 this is the second condition; 100% of the tax you paid the previous year. You usually have to pay estimated tax in four installments, starting on April 15. However, you don't have to start making payments until you actually earn income. If you don't receive any income by March 31, you can skip the April 15 payment and make only three payments for the year, starting on June 15. If you don't receive any income by May 31, you can skip the June 15 payment as well, and so on.



I will not have estimated income tax withheld from my employer.====>No ER withholds taxes form you since you are an independent contractor NOT a regular W2 EE; as you are self-employed, or if you have income other than your salary, you may need to pay estimated taxes each quarter to square your tax bill with the IRS/state;if you're a regular W2 EE, then your ER withholds taxes from every paycheck and sends the money to the IRS, and probably to your state government as well. This way you pay your income taxes as you go

I received a tax refund this year from my 2016 taxes, which I think means no prior year tax liability.=====>Not really; A tax refund is a refund on taxes when the tax liability is less than the taxes paid. you can often get a tax refund on your income tax if the tax you owe 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 you need to pay estimated taxes. You do not need to file return if you have no tax liability at all when your biz exp exceeds your biz income. So,in most cases, you must pay estimated tax for 2016 if both of the following apply.
1. You expect to owe at least $1,000 in tax for 2016, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:
1. 90% of the tax to be shown on your 2016 tax return, or
2. 100% of the tax shown on your 2015 tax return. Your 2015 tax return must cover all 12 months.


If I am not mistaken, my employer will send a 1099MISC at year end.========>Correct your ER should send you a copy of 10999MISC to you by Jan 31 2017 and submits a copy of 1099MISC/1096 to the IRS /your state ;you are still responsible for reporting all income whether a 1099 was received or not. The 1099-MISC is used to report many different types of payments in the course of trade or business. For most platforms and marketplaces, Form 1099-MISC is generally used to report business payments over $600 independent contractors. For example, say, a business owner hired a team of freelance writers to create content for his company website. Each freelancer was paid over $600 throughout the year. Each freelancer will then receive a 1099-MISC reporting the total payments the payor made to them for their work.

My question is more so asking what do I withhold during the year to at least not underpay taxes=====>actually in reality many taxpayers(unless net income is not so high) do not even pay estimated taxes since penalties/interest they think are not very high. If you have variable income over the year and don't have any income at all during one quarter, you would still over quarterly taxes if you figure them by the usual method of paying your total tax bill in even installments throughout the year. However, you have the option of choosing to annualize your payments. With this method, you refigure your tax bill at the end of each quarter, based on your income for the year so far. You'll pay more taxes in the quarters where you make more money. You'll need to file Form 2210 to avoid a penalty when you use the annualized method The IRS will waive the penalty on skipped, late or inadequate quarterly payments if you can prove you qualify to use the annualized method.



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