Hello,
I started working full-time as a contractor on 1099 earlier this year. It is my only source of income. I just registered as a sole-proprietor LLC and will be filing my first quarterly taxes in September.
Since it is a new business my income is growing quite a bit from one quarter to another. Is there a recommendation on how to estimate my income and tax payments? Will I be penalized if I over- or under-estimate my revenue?
Best,
Coumba
Taxpayers must generally pay at least 90 percent of their taxes throughout the year through withholding, estimated or additional tax payments or a combination of the two. If you don't, then you may owe an estimated tax penalty when you file. Since your income is earned unevenly during the year, the IRS allows you to annualize your income. Under that method, you will make unequal tax payments based on when you receive your income, rather than four even payments. Doing so will help you avoid or lower a penalty because your required payment for one or more periods may be higher with this method.
I have attached a link to the IRS publication 505 on how to figure your estimated taxes using the annualized method https://wwwhttps://www.irs.gov/pub/irs-pdf/p505.pdf.irs.gov/pub/irs-pdf/p505.pdf .