I am filing estimated taxes for the first time as an independent contractor. I understand the concept of simply estimating taxes based on my last year's taxes paid. I don't understand how to fill out the 1040-ES form if I'm using this method. The worksheet requires AGI, exemptions, etc. It doesn't seem to allow me to simply indicated taxes paid in 2006 and taxes owed for 2007. Should I just skip everything until line 14?
snipped-for-privacy@hotmail.com posted:
Bingo! But remember to add about 15% of your income, which will be assessed as a _below the line_ tax amount, since your employer is no longer withholding and paying the .0765 share of FICA and Medicare taxes. That isn't required to protect you from a penalty, but is wise in order to avoid a large additional tax due problem for you, next year. Bill
Why not skip the whole worksheet? The worksheet is just for your own use, to help you calculate your tax liability. You don't send the worksheet to the IRS. You don't have to use it if you don't like the way it works. If you understand the concepts, do your own calculation of how much to pay and fill in the result on the voucher. The voucher is the only thing you send to the IRS, and it simply says, in effect, "here's how much I'm paying this quarter." You don't have to show how you arrived at the amount. Bob Sandler
The basic requirement is that you have paid in as much as was your last year's tax (100% of that tax) in order to avoid penalty of underpayment. This is true unless your adjusted gross income for the prior year exceeded $150,000 ($75,000 if your filing status for 2007 is married filing separately). In that case you would substitute 110% for
100% quoted above. The simplest way is to divide last year's bottom line tax, divide it by 4, and make 4 equal payments to cover your liability. If you are going to make less than the prior year, you can make adjustments to the payments you make. As long as you have paid in 90% of what will be your current year's tax, no penalty will be applied.
The important form is the [not required] penalty form 2210. That tells you if you havent paid enough taxes on time. The IRS and most tax softwares automatically calculate i2210 for you and tell you if you have a penalty.
2210 has two ways of calculating the penalty, of which the IRS uses equal installments. The second method of annualized income is better for me personally because most of my variable income is in the final quarter. You have to do it both ways to find out whats best for you.BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.