First Year of Business - No Idea How to Estimate!

[sbmc]

I just started working for myself in the last year, and I had no idea how much income I would bring in when I started (and still would find it difficult to forecast how much I will make by the end of December). I've been setting aside 30% of everything I bring in in a separate bank account, but I haven't filed as an LLC or anything like that. (I'm in California where Sole Proprietors don't need to formerly "form") I have not filed any quarterly taxes so far this year. 

Does it make more sense to (A) pay in a lump sum when taxes are due next spring or (B) make my first quarterly tax payment at this deadline. 

If I go with (B) how will paying taxes in April go, given that I didn't pay quarterly taxes earlier this year? And how do I estimate given that my income is newly establishing itself? Thanks!

[Loretta P]

Hello sbmc,

The IRS requires that taxes are paid as you go instead of waiting to make a lump sum at the end of the year.  This article from the IRS.gov will help explain:  Pay As You Go, So You Won't Owe:  A Guide to Withholding, Estimated Taxes, and Ways to Avoid the Est...

TurboTax's Tax Caster tax calculator is a good tool to help you estimate your 2024 tax bill or if you may get a refund. 

I would suggest making your first estimated payment with the 3rd quarter deadline and base it on your year to date earnings.  The 4th quarter estimated payment is due January 15th, 2025.  You would base that estimated payment on your earnings from 10-1-2024 through 12-31-2024.

Here are some helpful links with additional information on how and when to make estimated payments.

Estimated Taxes: How to Determine What to Pay and When 

When to pay estimated tax