Hello,
New independent/booth renting hair stylist. Established an LLC for my business.
How do I go about estimating my annual taxes with TurboTax, so that I know what I need to pay quarterly?
Thank you!
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Hi Rwhalen 1!
Congratulations on starting your business! I am a Manager with TurboTax and I am happy to help you today. Below is some great information on this topic, both about how to handle taxes if you are self-employed AND how to calculate your estimated taxes. Good for you for planning ahead!
Thanks @rwhalen1 for your question!! Congratulations on your new business!!
If you have used the TurboTax software to file your 2022 tax returns, based on your 2022 tax info, we’ll use the lower of the following IRS-approved methods to calculate your estimated tax payments.
TurboTax help article: How does TurboTax calculate my estimated tax payments?
Starting a new business-Tax implications!
You can also try using the Taxcaster tool: https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
What is the best way to estimate just for this new business? I am not sure how my previous taxes would help since I was a W2 employee.
I expect to make about $80,000, with about $20,000 in expenses (both rent, supplies, credit card transaction fees)
Few questions:
1) Does my spouse's income come into play with the estimate or just taxes for this business? We historically filed jointly, so not sure how to handle this business of mine.
2) Do expenses come into play for estimated payments, so do those apply during annual filings?
3) Does the estimate include self employment tax + federal? What about state taxes?
When I put in $80K to the tax estimator tool, it says my estimate is ~$15K, which is only about 19%, which seems low. There was also a ~$41K deduction amount, equalling taxable income being at about $38K.
I do not understand where these numbers are coming from 🙂
1) yes, you spouse income estimated for current year should also come into the picture if you are filing married filing jointly. You can try out the option of filing Separately as well in the tax caster tool.
2) under the self employed section in Tax caster, enter the net income estimated from business. So expenses are deducted from gross income.
3) yes estimated taxes include, self employment taxes & federal.
4) for state taxes, you would need to visit your state website, if you need to file estimated taxes.
Check the IRS' list of state's department of revenue sites to see your state's requirements. They should also tell you how to make tax payments.
If you don't see your state, reach out to your state's tax franchise board or department of revenue.
Hi again.
Here is a link to the Tax Caster for the self employed. https://turbotax.intuit.com/tax-tools/calculators/self-employed/.
This will help you calculate your tax liability and thus, what you should pay in estimated taxes.
But to expand further on your questions, yes, your spouse's income absolutely counts. You want to continue filing jointly to get the larger deduction, and some other credits, as well. She might want to consider increasing her withholding, as well.
The SE (Self-Employment) tax covers your Social Security and Medicare, which in a W-2 job would be paid by your employer. To use your numbers, if your gross revenue will be $80,000, you will want to offset that with all of your expenses, including health insurance you purchase for yourself, rent on your chair, all your supplies, etc. These are all reported on your Schedule C, which is attached to your 1040 return. TurboTax self employed has a feature which populates expenses for your industry and you just fill in the numbers.
The estimated tax payments are based on your profit, not the gross income. So yes, the expenses come into play. And yes, TT will estimate the taxes based on your and your wife's incomes. This is a lot easier in the second year, when you have a history to go by, but you are also allowed to deduct startup costs the first year.
It is a good idea to make payments quarterly to keep in line with your actual income for that quarter, so you don't get behind and have to pay penalties.
Hope this is helpful.
Annette
Thank you! A little more follow up.
My husband is W2 employee and pays taxes automatically (as expected). I put in his income and the amount of taxes paid in 2022. For his taxes, do we just use the federal tax or combine social security and medicare?
When I am done, it puts this into a higher tax bracket and that we will owe an additional $25K in taxes. To confirm, does this amount include the self employment tax or is that in addition to the estimator amount?
Also, how do we go about estimating Ohio tax? Do they require quarterly as well?
Hi again rwhalen 1!
Your husband's employer pays his Medicare and Social Security, so you would only need to psy the tax on his income. However, he will want to increase his withholding, as you mentioned you are now in a higher tax bracket - this applies to his income, as well. Here is a withholding calculator for you to use to add in your income https://turbotax.intuit.com/tax-tools/calculators/w4/.
Because you used the self employment tax caster, it is taking into account your self employment tax, in addition to your income tax and the additional tax on your husband's income.
Yes, you will need to pay taxes in Ohio, but I don't believe you need to calculate any additional taxes other than income tax. Here is a link to the Ohio Dept. of Taxation. https://tax.ohio.gov/individual/resources/annual-tax-rates
You might want to make estimated tax payments to them or just increase your husband's withholding. One of the most common ways couples end up owing taxes, is that they fail to consider the dual income streams. So planning this in advance is very wise!
Hope this answers your questions. There is lot of helpful information on www.turbotax.com for self employed folks. You might want to bookmark it and come back during the year as questions come up. Of course, you can always come back here to ask your questions. And when you get ready to file your taxes, we have experts who can help you over the phone, or you might want to have one of them do your taxes for you!
Regards,
Annette
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