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Self employed
Hi @mceasley !
1. The IRS calculates the amount of the Underpayment of Estimated Tax by Individuals Penalty based on the tax shown on your original return or on a more recent return that you filed on or before the due date. The tax shown on the return is your total tax minus your total refundable credits.
They calculate the penalty based on:
- The amount of the underpayment
- The period when the underpayment was due and underpaid
- The interest rate for underpayments that we publish quarterly
2. To calculate what to pay, you will want to base it on your profit. Yes you can deduct expenses related to making the business income. You will want to allocate things that are used both personally and for the business accordingly, such as internet. Here is a good resource regarding calculating estimated tax:
3. Depending on what type of tax entity your LLC is, you may be filing a schedule C on your personal 1040 that you file jointly. However, if your LLC is a C corporation, it will be separate and you should receive a W-2 that you would file on your personal return. If is is an S corporation, you would receive both a W-2, and a K-1 that you would file on your personal return. If you didn't do an entity declaration when you organized the LLC, you will default to the Schedule C requirement.
4. If your self-employment income falls low enough that your W-2 withholdings cover all tax due, you won't have to worry about estimated payments, however you will want to keep a close eye on it. You can either adjust your W-2 withholding to cover it, or make the estimated payments.
Here is another resource for self-employment that you may find useful:
https://turbotax.intuit.com/personal-taxes/self-employment-taxes/
Hope this helps!
Cindy
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