I have a full time job where I receive a W2 with no retirement plan yet and I run an online side business as a sole proprietor. I just set up a SEP in October to offset my tax burden from my self-employment income. I have paid estimated taxes for Q1-Q3. I am curious if I can contribute the money I would pay in estimated taxes into my new SEP to avoid Q4 estimated taxes?
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If your four estimated tax payments would be very close to covering the tax liability from the self-employment income, including self-employment taxes, the maximum permissible SEP contribution is unlikely to reduce your taxable income enough to reduce your tax liability to where your Q1 through Q3 estimated tax payments would be sufficient to cover your entire tax liability. The maximum permissible SEP contribution will reduce your taxable income by less than 20% of your self-employment income (roughly 1/5 of a year's worth of self-employment income, which is less than 1/4).
Prepare an estimated tax return to determine the balance due with a maximum SEP contribution but no Q4 estimated tax payment, then you can use the indicated balance due to determine how much of a Q4 estimated tax payment to make.
You'll want to do the same for state estimated tax payments.
If your four estimated tax payments would be very close to covering the tax liability from the self-employment income, including self-employment taxes, the maximum permissible SEP contribution is unlikely to reduce your taxable income enough to reduce your tax liability to where your Q1 through Q3 estimated tax payments would be sufficient to cover your entire tax liability. The maximum permissible SEP contribution will reduce your taxable income by less than 20% of your self-employment income (roughly 1/5 of a year's worth of self-employment income, which is less than 1/4).
Prepare an estimated tax return to determine the balance due with a maximum SEP contribution but no Q4 estimated tax payment, then you can use the indicated balance due to determine how much of a Q4 estimated tax payment to make.
You'll want to do the same for state estimated tax payments.
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