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Estimated tax

Hi, when I did my estimated tax calculation, it looked like I would owe $800 (in addition to what was already witheld from my paychecks).

Since this is less than $1,000, I understand that I won't be subject to tax penalty.

However, for Q4, it looks like I might have found a job as an independent contractor that would take me above $1,000 in taxes. I did not account for this when I initially did my estimated tax calculations early this year.

Should I wait until the Q4 deadline to pay the entire years estimated tax? Since I didn't pay in Q1-3, will I end up with a penalty? How does the IRS know that I had pretty much very little MISC income in Q1-3, and then a big chunk of income in Q4? Won't they just see the total I earned at the end of the year, without knowing exactly when I earned those incomes?

Reply to
martin lynch
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Have an extra couple of hundred dollars of federal taxes withheld from your salary on the new job if it materializes.

Reply to
Bill Brown

They assume you earned the same amount in each quarter unless you file form 2210 and tell them otherwise. It's specifically for cases like yours, where income increases later in the year.

You can also tell your employer to withhold more now, since withheld tax is treated as though paid evenly though the year even if it wasn't.

R's, John

Reply to
John Levine

See the "annualized method" where it talks about earning an uneven amount of income per quarter [year].

Reply to
D. Stussy

Even if you paid the $800 now, part of it would still be considered late and you would owe a penalty.

As an independent contractor you don't get to withhold taxes. So you can increase your withholding at your regular job before you quit it.

You can calculate your tax for each quarter using the annualized method as others suggested. But it's so much work. The penalty in $2000 of tax owed is probably only like 0.02660*2000 (from line 15 of form 2210) or $50. And it's even less if you pay before April/15. Paying an accountant for the full calculations would be much more.

Also see if you can take advantage of prior year safe harbor. If your total withholding equals 100% or 110% of last year's total tax, then there is no penalty. So maybe just withhold a lot at work now and nothing in Q4 although have the tax ready to pay next year.

And of course, maybe bunch all your donations this year, pay next year's property tax this year (only one year in advance), etc to reduce taxable income. Just do the calculations. If you're in AMT then you don't a tax break for paying your property tax bill.

Reply to
removeps-groups

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Reply to
ed

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Lots of good advice, however, you can't get rid of the penalty by paying your entire tax early. That only waives the penalty for the

4th quarter. The following will reduce and possibly eliminate any penalty.

File form 2210 AI with your return electing to apply withholding in the quarters paid and using the Annualized Income Method. Be sure to use withholding through April 15, June 15, and September 15, NOT just March 31, May31 and August 31. Any Deductions, such as a Capital Loss Carryover, and Schedule A (even if you don't normally itemize) in the first quarters will greatly reduce any penalty.

The 2210 takes a lot a calculating but is not difficult. It takes the same input you would have on your 1040. You can download a 2210 tax calculator spreadsheet from the internet if you have Excel that does all the calculating for you . good luck

ed

Reply to
ed

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