Question related to self employment

Forum|Forum|1 year ago
March 8, 2025
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Thank you in advance for your help! Im soo confused and anxious about doing estimated taxes. Please explain in as simply as you are able to.

I have a small business and my husband works another job of which he recieved a W 2 and has taxes taken out each paycheck. We will file jointly next year and will report business income on a schedule C.

1. My understanding is that I can proceed with calculating estimated taxes based on only my small business Gross income or Net after deductions? Is this correct please?

2. Do I figure out Social Security and Medicare taxes at 15.3% and then incorporate this amount into my estimated taxes owed?

3. How does the Social Security and Medicare taxes eventually get to where they need to be and when are they credited to my earnings? Does this happen when we file our joint return?

4. Do I have to apply any business related deductions reducing estimated taxes owed or can we just enter them on a schedule C when we file our joint return? (I can't be sure what all of our expenses will entail for the year).

5. My business income may vary widely. Can I adjust each quarters payments? There isn't really a way I will know how much I will make for the year.

6. What is the Safe Harbor rule? Last year my business Gross income was approximately $15,000.00, but due to so many start up and other expenses, we showed a loss of approximately-$ 400.00.

Thank you kindly!!

Not A Product Question

MAK70

1. You can base your estimated taxes on your Net income, since this is the amount that you will be taxed.

2. Yes, you must use calculate your estimated taxes with the social security/Medicare taxes on the self-employment income- however, you can use 7.65% instead of the 15.3% because you do get an adjustment to income.

3. The total social security./Medicare taxes you pay when you file your tax return are reported to the Social Security Administration so you will will full credit when you retire. It is a good idea to check every year to make sure you have the correct amounts credited, because it is much easier to resolve any issues earlier rather than finding out ten years later there was an error.

4. It is usually better to base your estimated payments with the deductions because it does encourage you to keep up to date on your records, and in many cases you will be paying a lot more in estimated payments which is not efficient (it is a tax-free loan to the government).

5. You can make the adjustments each quarter; it is your personal choice.

6. The safe harbor rule allows you to use your current year tax liability to avoid the underpayment of estimated taxes penalty. The IRS will not charge you an underpayment penalty if you pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year, or you owe less than $1,000 in tax after subtracting withholdings and credits.
(This rule is altered slightly for high-income taxpayers. If the Adjusted Gross Income (AGI) on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.)

You can also use the IRS Tax Withholding Estimator.

CaroldehavenAuthor

Thank you so much for your reply.

Just a couple of clarifications please.

1. So it is ok to just do estimate on my small business income and not my husband's job earnings for which he has taxes taken out of checks during the year? It seems like it wouldn't make sense to estimate my husband's taxes as he has the taxes without every paycheck

2. I'm still a bit confused about the Social Security. I pay in funds for it with the estimated tax each quarters but then how does it get to the Social Security and Medicare fund? Does this happen after we file our joint return next spring? I don't understand how it works.

Since our business was at a $400.00 loss last year, would this mean that we wouldn't be penalized for not paying quarterly tax or for paying little under the Safe Harbor rule? I do plan on paying significant quarterly tax, I'm just trying to understand. Is the gross income what is looked at under the Safe Harbor rule or is it the income was remaining after expenses and deductions (the net income) although we ended up with a loss.

4. Will I be penalized if I dont take deduct expenses etc until we do our joint return next spring? I know its like loaning money to the government but I'm afraid of not paying enough tax. We just want to error on the safe side.

5. Do I send in a 1040SE and any state form every quarter or just for first quarter and them send vouchers with payment for second, third, and? Do I do a form for Minnesota after I do the 1040 SE and then pay quarterly taxes to the state too?

6. What happens if we make uneven quarterly payments? Do we have to fill out other paperwork if a quarters payments varies from the initial estimate?

7. If I overpay the taxes, which will probably happen, do we have a choice of getting it refunded or credited?

Hopefully, I can survive this first year of business, taxes, forms, procedures etc!

Thank you for your time and patience in answering my questions and for providing clarification

Vanessa A

1. Yes and No. The payments you make should be based just what you would owe, however, when doing the calculations, you should consider how much he makes so that you are making the payments that are ordinary income taxes based on the correct tax bracket. For example, if you make $55k from your business and he makes $55K from work, and you calculate your taxes based on Married Filing Jointly, then you would both only have withholdings at the 12% bracket, when in reality it should be at the 22% bracket. So, you don't need to pay taxes on his, but you do need to consider what he makes to properly calculate your tax rate.

For your self-employment taxes, his income does not affect yours.

2. Yes. At the end of the year, when you say this is how much I actually made by filing your tax return, then the payments that would be due for SS and Medicare are made there. You do not have to do anything special to direct the money to go to the correct place.

3. To not be penalized you would need to pay 100% of your last years tax LIABIILTY for your return, not just your business. This is found on line 16 of your form 1040.

4. No. You are never penalized for overpaying, only underpaying. If you want to overpay, that is perfectly fine with the IRS.

5. Your 1040SE attaches to your form 1040. You will only send this in when you file your actual return. You can either send in your vouchers quarterly or pay online directly at IRS Direct Pay.

6. No. There is no paperwork to fill out to let them know you are making uneven payments.

7. Yes, if you overpay, you do have the option to get it refunded or you can have it applied to the next years taxes.

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