When should I pay estimated taxes and taxes for income and stock received from consulting for start-up?

[Spouse1234]

I have a full-time job at a large employer for which my payroll taxes are deducted. For the first time, I consulted on the side with a foreign start-up company. The work is complete and I am about to receive compensation. Some of it will be cash, the rest will be stock in the company at an [internal] share price of about half of what they offered investors a few years ago. The hope one day is that the start-up will get bought and the stock will be worth much more. Of course, they could also go under, and it be worth nothing.

My questions are:

- Do I need to pay estimated taxes right now, for either the cash or stock or can I wait until Dec 31? Every year, I often pay estimated taxes on Dec 31, just in case, and always get some or all of it back.

- Will I need to report the stock as taxable in 2021? On one hand, it is vested to me, just as my employer's stock award to me are taxable in the year it is vested. On the other hand, it's a private, start-up company, where the valuations could fluctuate and it won't be worth anything until they get bought, perhaps a few years in the future.

- When I do buy TurboTax for 2021, can I keep using Deluxe or should I use a different version?

[Mike9241]

My questions are:

- Do I need to pay estimated taxes right now, for either the cash or stock or can I wait until Dec 31? Every year, I often pay estimated taxes on Dec 31, just in case, and always get some or all of it back.

to be safe from penalties, your withholding and timely estimated tax payments must be 90% of your 2021 tax or 100% of your 2020 tax (110% if your adjusted gross income for 2020 is more than $150,000)

- Will I need to report the stock as taxable in 2021? On one hand, it is vested to me, just as my employer's stock award to me are taxable in the year it is vested. On the other hand, it's a private, start-up company, where the valuations could fluctuate and it won't be worth anything until they get bought, perhaps a few years in the future.

since you are vested, the stock compensation is taxable in the year received. the problem you have is determining its Fair Market Value on the date of issuance since it is a private company. you may need to consult a professional to value the stock. 

- When I do buy TurboTax for 2021, can I keep using Deluxe or should I use a different version?

probably available November 2021

[Spouse1234]

Thank you for your replies.

Do I need to pay estimated taxes right now, or can I wait until Dec 31, 2021?

When I said version Quicken, I meant, can I stick with Deluxe, or do I need to use Premium, Home & Business, or something else?

[DaveF1006]

You should start making estimated taxes payments now to avoid estimated tax penalties. You should use Turbo Tax Home and Business so you can deduct some of the startup costs associated with your consulting business.

[Spouse1234]

OK, thanks for that suggestion to pay estimated taxes now.

I did not have any startup costs, nor do I intend to this anymore. At my last job, a coworker on the board of this startup had approached me. I said I'd do it for free. But as we got further into it, they did a contract, and then I left that job and joined my new one. At that point, the work was minimal for me, a lot for them, and they hit the milestone, so that is what triggered the payment. My work with them is done now and I am not doing anything further. For payment, they asked me to choose now on cash vs equity for payment, and I chose mostly equity, very little cash, since from my perspective, would have done it for free. I had hoped by choosing equity it would delay the tax liability, but as I have now learned, that is only the case for options (which was not an option).

If I pay estimated tax by Dec 31, can I avoid the estimated tax penalty? Or do those estimated taxes need to be paid in the quarter it was earned?