topic Re: Unpredictable yearly income in Self employed

Unpredictable yearly income

Ewaters17 — Wed, 27 Oct 2021 16:56:13 GMT

Hello,

I am a freelance graphic designer. My yearly income varies vastly year to year, and I really never know how much I'm going to earn. Is it okay for me to continue to pay my taxes only at the end of the year, or do I need to be paying taxes quarterly?

Thanks!

Re: Unpredictable yearly income

Michele_H — Wed, 27 Oct 2021 16:58:37 GMT

Hi @Ewaters17 here is a more detailed explanation to help determine if you should or should not pay quarterly.

Do I have to make estimated tax payments?

It depends. The general rule is that you must pay as you go. Meaning that when you file your tax return, if you haven't paid enough taxes through withholdings or estimated tax payments then you might owe an underpayment penalty.

To determine whether you need to make quarterly estimates, answer these questions:

Do you expect to owe less than $1,000 in taxes for the tax year after subtracting your federal income tax withholding from the total amount of tax you expect to owe this year? If so, you're safe—you don't need to make estimated tax payments.
Do you expect your federal income tax withholding (plus any estimated taxes paid on time) to amount to at least 90 percent of the total tax that you will owe for this tax year? If so, then you're in the clear, and you don't need to make estimated tax payments.
Do you expect that your income tax withholding will be at least 100 percent of the total tax on your previous year's return? Or, if your adjusted gross income (Form 1040, line 8b) on your tax return was over $150,000 ($75,000 if you're married and file separately), do you expect that your income tax withholding will be at least 110 percent of the total tax you owed for the previous year? If so, then you're not required to make estimated tax payments.

If you answered "no" to all of these questions, you must make estimated tax payments using Form 1040-ES. To avoid a penalty, your total tax payments (estimated taxes plus withholding) during the year must satisfy one of the requirements above.

Re: Unpredictable yearly income

VolvoGirl — Wed, 27 Oct 2021 16:59:51 GMT

If you only pay at the end of the year on your tax return you may owe a penalty for not paying in during the year. You should still send in some quarterly. You will get a refund if you over estimate the amount.

You must make quarterly estimated tax payments for the current tax year if both of the following apply:

- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.

- 2. You expect your withholding and credits to be less than the smaller of:

90% of the tax to be shown on your current year’s tax return, or

100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months).

Re: Unpredictable yearly income

Ewaters17 — Wed, 27 Oct 2021 17:08:58 GMT

Thank you! How would one go about sending in these quarterly payments. Do you do it through a software like turbotax or quickbooks? or you have to send it in directly?

Re: Unpredictable yearly income

VolvoGirl — Wed, 27 Oct 2021 17:11:20 GMT

How to make the Estimated payments

https://ttlc.intuit.com/community/tax-payments/help/how-do-i-make-estimated-tax-payments/00/25875

Here are the blank Estimates and instructions…..

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

The 1040ES quarterly estimates are due April 15, 2021, June 15, Sept 15 and Jan 18, 2022. Your state will also have their own estimate forms.

Or you can pay directly on the IRS website https://www.irs.gov/payments

Be sure to pick the right kind of payment and year.....2021 Estimate