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09-25-2008, 01:32 PM
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#1 |
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Registered User
Join Date: Sep 2008
Posts: 3
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Self Employment tax question
I'm employed by an employer and self employed. I have an additional amount on my W4 to compensate for my self employment taxes instead of paying quarterly. This year I did a project and made a great deal more than I expected. Can I begin to pay quarterly now through the rest of the year to make up the difference between what has been and will be deducted from my employer paycheck for my taxes? Will I be penalized for not paying quarterly before this? I had no idea I would be making more so I don't see how I could be expected to estimate properly. What form or forms do I need to do this? Thank you for helping with this.
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09-25-2008, 08:05 PM
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#2 |
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Registered User
Join Date: Oct 2001
Posts: 1,586
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Rich_Bailey77,
Congratulations on reaping the reward for your hard work. First, there are some "safe Harbors" that you may fit into before you must make estimated payments: - If your withholding plus credits is within $999 of your 2008 tax. - If your withholding plus credits is at least 90% of your 2008 tax. - If your withholding plus credits is at least 100% of your 2007 tax. When you meet any one of these situations, it is not necessary to make estimated payments. You were smart to adjust your withholding to compensate for your self employment. We are required to pay our tax as we earn the income. Estimated payments have regular due dates: Jan.1 to March 31, due April 15; April 1 to May 31, due June 15; June 1 to August 31, due Sept. 15; Sept 1 to Dec. 31, due Jan. 15 of the next year. But what happens when your income is greater in one of these periods than the other? There is the annualized method of determining your estimated payment. This method is a bit complex and is discussed in Chapter 2 of IRS PUB 505, Tax Withholding and Estimated Tax. http://www.irs.gov/pub/irs-pdf/p505.pdf The form for sending in your Estimated Payments is 1040-ES. - Instructions and payment vouchers: http://www.irs.gov/pub/irs-pdf/f1040es_07.pdf |
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09-26-2008, 09:32 AM
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#3 |
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Registered User
Join Date: Sep 2008
Posts: 3
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Thank you. It has been a long summer.
If I understand you correctly, since I had more than 100% of my 2007 total tax withheld during 2008 I will not incur a penalty or need to file estimated payments right? Thank you, Clydewolf for helping with this. Taxes and having to figure this stuff out is the worst part of being self employed. It seems like the government wants to discourage us from working. |
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09-26-2008, 01:58 PM
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#4 | |
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Registered User
Join Date: Oct 2001
Posts: 1,586
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Quote:
Rich_Bailey, Yes, if your withholding plus tax credits will be at least 100% of your 2007 tax, you do not need to make estimated payments for 2008. There will be no penalty. You may want to review IRS Pub 505 just for information. |
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10-02-2008, 08:02 PM
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#5 | |
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Registered User
Join Date: Jan 2007
Posts: 46
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Quote:
But he will fix everything. Trust him, he is the smartest guy in the room as far as he knows. |
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01-23-2009, 12:06 PM
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#6 |
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Registered User
Join Date: Sep 2008
Posts: 3
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One thing Gerald Ford got right is when he said, "A government big enough to give you everything you want is a government big enough to take from you everything you have." I hope people learn that lesson before it is too late.
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01-29-2009, 10:53 AM
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#7 | |
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Registered User
Join Date: Jan 2009
Posts: 9
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Quote:
I think you'd have to tax pretty high to get people to stop wanting to make as much money as possible. It's been done in our past, but I don't think we're near that threshold right now. IMO
__________________
My banks blog. |
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02-05-2009, 12:47 AM
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#8 | |
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Registered User
Join Date: Jan 2007
Posts: 46
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Quote:
Entrepreneurs face 50% marginal taxes already, when you combine state and federal, plus another 15.3% self employment tax on top of that. If you try to escape some if this with lots of deductions, you get hit with the AMT tax instead, the government is already way ahead of you on that. Then, after tax income is taxed again in the form of sales tax when you go out to buy things, usually at a rate of around 7% or so. If you drive a nice car, live in a nice home, or have nice property, you get to pay property tax again, using your after tax income. Things like business property, inventory, licenses, permits, all equal different levels of taxation again and again. As an entrepreneur, not only do you pay all of your own FICA tax, but if you have employees, you pay half of their FICA tax for them, plus another unemployment tax. Gross receipts are taxed in some states, even if you don't make any profits on this income. What don't they tax? So "after tax" income is really a term that means one tax is ending, and another tax is beginning. Then, when you die, the government takes 50% of your estate to pay estate taxes. This is an estate you accumulated during your life with income that was already been taxed several times over. 50% income tax, then tax what you have left again another 50%, means that the real marginal tax rate is 75%. |
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