Minimum estimated Tax Payments for hard to predict income

[smahony]

Let's say the previous tax year you made in the area of $85k as a sole proprietor and the contract providing you most of your income ended this tax year.If you're not sure whether you'll be making $0 or more within a given quarter and/or you're currently in a negative cash flow situation, what is the minimum estimated tax payment you should make? In other words, I don't want to have to be penalized for making less than my cost of living. Thanks.

[marctu]

Hello @smahony, and thank you for your question.  Let me try and answer this the best I can.   There is no minimum estimated tax payment if your self-employment earnings are zero or are negative for the full year.  I understand it is very hard to predict your income, and if you are at zero or are at a loss for the year, I do hope that it turns around for you soon.

If you want to attempt to estimate for the full year do this.  From the Home Page, go to the Tax Returns and Documents area near the bottom.   On the 2022 tab choose Add a State, which is below your Federal and State filings on the left side of the screen.   You will not actually be adding a state, but just opening the Turbo Tax questions and answers that you previously completed, which is referred to as the interview.  

So, at that point, you go under the Federal as opposed to the Personal or State areas.   Then under Federal, go to Other Tax Situations; once there then go to Other Tax Forms, and then finally go to Form W-4 and Estimated Taxes.  

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[rschule1]

Hi there;

The only way to predict irregular income is with regular monthly bookkeeping which will keep track of income and expenses on a monthly or quarterly basis. Our sister company Quickbooks has world class software for this.  Regular bookkeeping will shed light on minimum estimated tax payments.

[NancyM5]

My colleague @marctu gave some great information.  Let me give you another way of looking at the situation.  Estimated payments are made 4 times per year:  April 15th, June 15th, September 15, and January 15, 2024.  And each of those payment dates look at the period before it. 

So let's look at the next payment date of September 15th.  Estimate your taxable income from January 1st of this year through August 30th.  Then you can determine what tax you may owe using the tax tables in this link: 2022-2023 Tax Brackets: Find Your Federal Tax Rate Schedules.  If you determine that you don't owe any taxes for this 8 month period, then you don't need to make an estimated payment. 

Then before the next quarterly payment deadline of January 15, 2024, you go through the same calculation.  This time you look at your taxable income for all of 2023 and determine if you owe any taxes.  If you do, then make that payment.  The IRS can't penalize you for not paying estimated taxes if you can show that at any of the payment due dates you didn't owe taxes.

I hope this provides another way of looking at your question.  And I hope that your business turns around for you soon.