Question

If I was employed for part of this year and became self-employed recently, how do I pay estimated taxes without a penalty for missing the first payment while employed?

Forum|Forum|2 years ago
July 5, 2023
1 reply
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I was employed until 3/31, so taxes were withheld by that employer satisfying pay-as-you-go. I formed an LLC in May and my first invoices were in June, so technically no self-employment income in IRS's Q2 (4/1-5/31), hence I made no estimated tax payments for Q1 or Q2. I have now completed 1040-ES and calculated my estimated taxes owed for 2023, but it's not clear how to divide up that amount. Across the remaining 2 quarters? Or divide by 4 and then pay the Q1 and Q2 vouchers now, then the Q3 and Q4 vouchers as their due dates arrive? In either case, how do I avoid being assessed a penalty by the IRS when they receive the first 2023 payment this late in the year and interpret that I missed prior payments?

TurboTax Premier Online

VolvoGirl

Did you use Turbo Tax to prepare the estimates? One thing you could do is...

To just estimate the remaining quarters put in that you paid $1 for the missed quarters so it will only calculate the remaining quarters.

But yes you should send in a payment as soon as possible to cover the 2nd quarter. You can pay directly on the IRS website https://www.irs.gov/payments

Be sure to pick the right kind of payment and year.....2023 Estimate

Next year when you do your 2023 tax return if you get hit with a penalty, You might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's from 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

B

bmw71Author

Thanks for the response! I'm prepared to make an estimated tax payment immediately if warranted to cover Q1/Q2, however that is interpreted. How much? Divided the 1040-ES total by 4 and send in the first two quarters worth (50%)? Divided the 1040-ES total by 3 and send in the first third to cover Q2 and ignore Q1? Shouldn't the withholding by my employer in Q1 cover what I would have paid in Q1 had I been self-employed? I feel like most business probably do not form on January 1, so my situation cannot be rare and I'm mystified by the lack of clear guidance from the IRS here. Why should I be assessed a penalty at all when if I even make any Q2 payment at all then I'm technically paying ahead and not "as-you-go" in arears? Thanks in advance!