End of year actions?

[clt403]

I'm just starting out as an independent contractor (consulting) this year. I had a W2 job until being laid off in May of this year and have received some unemployment payments (and opted to withhold tax). I have yet to receive any income from independent consulting but will have before the end of the year. However, I really do not know how much I will receive before the end of the year.  Using the taxcaster, it is estimating a refund of ~$2000 for income earned to date. 

What actions do I need to take, if any, for this year? Can I just wait until January to sort it out once I know my actual self-employment income for this year?

Thank you!

[Sean Enrolled Agent]

Hello,
Welcome to the world of self-employment!

For this year, I would suggest that you still make estimated tax payments based upon the income that you have received. That will help make sure that you do not have any penalties or late fees charged by the IRS when you file your 2023 tax return.

Most independent contractors pay estimated taxes to the IRS and to their state during the year. That way, they are paying as they earn income.
You can use the IRS Tax Withholding Estimator calculator located at this website: https://apps.irs.gov/app/tax-withholding-estimator

Once you have an idea of how much you will owe for 2023, you would then want to make estimated payments to the IRS so that you are paying taxes as you are earning the income.
You can use the IRS website in order to make estimated payments here: https://www.irs.gov/payments/direct-pay

Our tax system is known as a "pay as  you go" tax system. This means that the IRS expects taxes to be paid as income is earned. That was easy to do when you had a job and your employer paid taxes for you on each paycheck.
Now that you are an independent contractor, you will want to make sure that you take care of these payments during the year. If you wait until the end of the year, you could face some penalties and fines for not paying taxes during the year.

For more help with how to plan for paying taxes as an independent contractor, please feel free to use the following websites for some tips and tricks:
https://turbotax.intuit.com/personal-taxes/self-employment-taxes/
https://turbotax.intuit.com/tax-tips/self-employment-taxes/beginners-tax-guide-for-the-self-employed...
https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-form-1099-nec/L5fbwIFSn

[CatherineR · Accepted solution]

Congrads on your self employment job for 2023!

Looks like you have done your homework using our Tax Caster tool.  You have until January 16th, 2024 to make the last estimated tax payment.  By then you should know how much income you received for 2023.  Update the Tax Caster with your latest information before that date to see if your refund situation holds.  

You may also want to check that you have reached one of the safe harbor levels to avoid penalties.  Here is more information about that:

How to avoid IRS penalties 

Good luck on your new employment venture!

[clt403]

But I have not received any self-employment income yet to pay on (and won't by the Sept 15th payment deadline), and have paid income tax through withholdings on both my W2 and unemployment income thus far.  

Also, I live in Texas, so no state income taxes to worry about.

[clt403]

Okay, thanks @CatherineR. This was helpful.