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Old 08-03-2011, 03:07 PM
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2011: Employee, Then Independent Contractor

In the beginning of 2011, I was an employee of a corporation. In May I left that job, and became an independent contractor, also owning a sole proprietorship. Basically I have two questions:
1) When do I start paying estimated quarterly taxes?
2) When I do an annual file in 2012 for the 2011 year, do I file jointly with my husband for when I was employed, AND file my business taxes separately??



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Old 08-04-2011, 03:23 AM
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“1) When do I start paying estimated quarterly taxes?”--->Youneed to start paying your quarterly estimated taxes when yoyu becames an IC, a sole proprietor as long as 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 $1,000 or more when you file your return for 2011; however, you do not have to pay estimated tax for the current year if you had no tax liability for the prior year; you were a U.S. citizen or resident for the whole year ;your prior tax year covered a 12 month period. You should file Sch C as long as your net earnings is $400 by filing Sch C. Also as long as the mount on 1040 Sch SE line 4 is $400 or exceeds $400, you need to pay quarterly self employment taxes on Form 1040ES; elf-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. The self-employment tax rate for self-employment income earned in calendar year 2011 is 13.3% (10.4% for Social Security and 2.9% for Medicare). For self-employment income earned in 2010, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). You need to pay quarterly estimated taxes to your state if your state imposes income taxes on its residents. Currently 9 states do NOT imposes income taxes on their residents.
Pleae visit the IRS Websites here; Estimated Taxes
“2) When I do an annual file in 2012 for the 2011 year, do I file jointly with my husband for when I was employed, AND file my business taxes separately??”--->You can file your return as MFJ/MFS whatever filing status you want; if you file your return a MFJ , then you need to report your selfemployment net profit( on Sch line 31 ) on 1040 line 12. And report the net profit(exceeds $400) on Sch SE line 2 and 4 and report your SE tax on 1040 line56, You also should deduct one-half of self-employment tax on 1040 line 27. REMEMEBR: You need to make QURTRELY estimated tax payments if your income tax withholding will not fully cover next year's tax liability. You need to make estimated tax payments at least every three months. You should make your payments at least every three months. Estimated tax payments are due by April 15th, June 15th, September 15th, and January 15th. 6.If you expect your income to increase or to decrease significantly, you may want to calculate your estimated taxes using your projected total income. Since you are self-employed, don't forget to estimate both your regular income tax and your self-employment tax. You can find your average tax rate by dividing your income tax on both your spouse’s and your EE and SE income on 1040 line 43 by your adjusted gross income (1040 line 37). Now, add your average tax rate to the self-employment tax rate of 13.3%. Multiply this percentage by your quarterly net profit to figure how much estimated tax to pay; for example, the amount on line 38 is $30000 and the amount on line 43 is 15,000 then it is 50%;$15,000/$30,000=50% and add your SE tax rate of 13.5%=13.5%+50%=63.3%. and assume that your net profit on Sch C line 31 ‘d be $40,000 then $40,000*63.3%=$25,320; So, you need to pay $6330 per quarter for both quarterly estimated and SE taxes to the IRS. If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.
Please visit the IRS Website here: Estimated Taxes



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