My wife started a part-time, private physical therapy practice in September 2018. She has elected to run the business as a sole proprietor. With start-up costs, she did not show a profit for the last quarter of 2018 so we did not pay any quarterly taxes and she carried over a loss of about $6k to 2019. For the first quarter of 2019, she was profitable about $1k. Do I need to send in an estimated payment for taxes for that profit or does the carry-over loss wash out any monies due until there is a cumulative profit in 2019?
Thanks for your help,
When you receive your first payment is not really factor.
What you need to consider is what your total taxes will be for 2019. This will include income tax AND self-employment tax. The SE tax is something you haven't had to deal with before. It is roughly just under 15% of your net income from self-employment.
What you need to do is consider your total tax on what I presume will be a return of married filing jointly.
You need to estimate your total income tax plus SE (self-employment) tax. From that, you would subtract any withholding, less any credits, pre-payment credits, etc. Then you would spread out the remaining tax over the estimated payments. It might be easier to include some payment in the June filing, that way the remainder of the payments won't have to be as large. The SE tax will greatly increase your tax bill.
See the following link for some more information. The link also has sub-links for forms and further information
Actually, what is more confusing is that you stated you carried over a loss. Why is that?
Since your wife materially participates in the business activity this loss should have been included on your 2018 tax return and offset other income.
Can you provide some additional clarification. something is not making sense.
My bad. You are correct. The loss was applied to 2018 taxes. Thank you for catching that and thank you for taking the time to comment
Thank you for your reply. I guess you need to do some forecasting in order to figure out how much to pay. Thank you for your help.
If, at tax filing time you owe the IRS more than $1000 or more than 10% of your total tax liability, then an underpayment penalty will be assessed for not having paid enough each quarter. That will be based not just on the business income, but on the entire total household income reported on the tax return.
Remember, with self-employment income in addition to your "regular" tax on that specific income, you will also pay the additional 15.3% self-employment tax on top of that.
That's helpful to know. I will print out the Estimated Tax worksheet from form 1040-ES and see how things look.