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Very hard to calculate quarterly estimated tax payments

Forum|Forum|2 years ago
August 30, 2023
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Hi there, this year I've switched to a contractor role and have been making all of my income as sole proprietor of my LLC. I'm very new to this new tax situation and wasn't aware that I should've been making quarterly payments. To not miss the September deadline for the next payment I'd like to better understand how to calculate what I should pay, however the Form 1040-ES has proven incredibly complicated for me to understand how to fill out. What would be the best way to receive assistance with this?

Ask the Experts - Self-Employed - Aug 2023

Best answer by JBedford

Thanks for your question, @jcarchila! The simplest thing to do is to pay in 100% of your 2022 tax liability from Line 24 of your Form 1040 (110% if f you make over $75,000 as a single filer, or $150,000 if married filing jointly, in self-employment income.) Since you missed the first two payments, I would pay in 75% of that number before September 15, and the remainder before January 15. This amount is a "safe harbor" that will prevent the IRS from assessing an underpayment penalty (though you might still get a smaller penalty due to the first two payments being late). However, don't forget to count any other tax payments you make. For example, if you have tax withheld from a job. This will reduce the amount you need to pay.

Hope this helps, please let me know if not!

JBedfordAnswer

Thanks for your question, @jcarchila! The simplest thing to do is to pay in 100% of your 2022 tax liability from Line 24 of your Form 1040 (110% if f you make over $75,000 as a single filer, or $150,000 if married filing jointly, in self-employment income.) Since you missed the first two payments, I would pay in 75% of that number before September 15, and the remainder before January 15. This amount is a "safe harbor" that will prevent the IRS from assessing an underpayment penalty (though you might still get a smaller penalty due to the first two payments being late). However, don't forget to count any other tax payments you make. For example, if you have tax withheld from a job. This will reduce the amount you need to pay.

Hope this helps, please let me know if not!

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J

jcarchilaAuthor

Hi @JBedford, thanks for the quick reply! I believe my situation is actually quite complex - I filed most of my 2022 taxes as a full-time W2 employee and only started working as a contractor in October 2022, meaning that my 2022 tax forms reflect a very different tax situation to my current one (most importantly, most of my 2022 taxes were automatically withheld by my full-time job).
When I access Form 1040 from my 2022 return, I can't seem to find any figures on line 24 that would reveal any tax liability. I have a rough idea of the amount of tax I'll need to pay when it comes time to file my taxes for 2023, so my next question is - if I'm unable to calculate an accurate quantity for quarterly payments and simply pay money to the IRS, it will automatically count towards any estimated tax payment, correct?

JBedford

If you indeed had zero tax liability last year, then you should not incur an underpayment penalty, even if you don't pay anything. But to answer your question, yes, all payments to the IRS count "the same". They don't care if it's an estimated payment, or withholding, or just a regular old payment.

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C

cabusby

Once you've calculated your tax due, you can make payments directly to the IRS. You don't have to wait to make quarterly payments. https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes