Paying Taxes While Self Employed

[Pmobley1]

I would like some advice on taxes for entrepreneurs. To give a little background on my situation, I have a fulltime job, but I have a lot of side projects throughout the year. I receive a 1099 from these companies each year and the taxes get extremely high come tax season. Is there a way to alleviate the heavy tax bill in April. Should I file differently this upcoming year?

[VolvoGirl]

You should be sending in quarterly estimated payments to cover the extra income tax and self employment taxes.  Or you can increase your withholding at work if it will be enough.

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).

To prepare estimates for next year you start with your current return, but be careful not to change anything.  For Online returns, if you can't get back into your return, Click on Add a State to let you back into your retun.

You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.

Or Go to….

Federal Taxes or Personal (Desktop H&B)

Other Tax Situations

Other Tax Forms

Form W-4 and Estimated Taxes - Click the Start or Update button

To just estimate the remaining quarters put in that you paid $1 for the missed quarters so it will only calculate the remaining quarters.

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 18, June 15, Sept 15 and Jan 16, 2024.  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.....2023 Estimate

[mbexpert]

Hi there!

You sound like a hard worker, working full time with a business on the side as well!

I would need more information about the side projects. Are they all related? Are they income from running a business?

If so, you would report these 1099 NEC forms as income on a schedule C and you could offset that income with expenses associated with earning the income.

You would also be required to pay quarterly estimated taxes throughout the year. This would ensure you do not have an estimated tax penalty and lower the amount of taxes due when you file your return. 

I have included a link with more information on filing :

https://www.irs.gov/payments/pay-as-you-go-so-you-wont-owe-a-guide-to-withholding-estimated-taxes-an...

[Pmobley1]

Yes, they are from a running business. Am I able to list my internet bill as an expense. I am constantly working online for this company, so can I use it for a deduction?

[TimS5]

Yes, there is a way to alleviate the tax burden at the end of the year.  On your W-2, your employer withholds money through out the year for both income taxes and social security.  As an independent contractor, you are responsible for these taxes.  Based on the amount that you make through out the year, it would be advisable to pay in estimated tax payments quarterly.  This has two advantages to you.  The first being that you do not have a large tax bill at the end of the year and the second is that you may avoid penalties for being underpaid on your taxes.  

When computing your estimated taxes, there are various methods that can be employed.  One method is basing the estimates on your income/taxes paid in the prior year using the current year rates and estimated withholdings on your earnings.  Another is to figure your income you earn during the current year, annualizing the income and paying in the estimated taxes based on those calculations.  This link will provide you with guidance in determining the amount you should pay quarterly.  https://turbotax.intuit.com/tax-tips/small-business-taxes/estimated-taxes-how-to-determine-what-to-p...

[Pmobley1]

Thank you so much for your help! You guys are awesome!

[Katie-P]

Hi @Pmobley1,

Thanks for your question! I'd be happy to help.

It can be challenging for self-employed taxpayers to know how much to pay in terms of quarterly estimated tax payments. When you have multiple sources of income, as you do, it can be even more complicated. I'll provide some guidance below.

1. I advise that you first use our TaxCastor calculator to determine where you might land for 2023 (the calculator is currently still pointed at the 2022 tax year since that is the current tax year, but you can still use it to estimate 2023).
2. If you see that you will owe, I recommend that you go ahead and make an estimated tax payment as soon as you can. Here is an article about how to set up an estimated tax payment on the IRS's website: How do I make estimated tax payments?
3. When you file your 2023 taxes, make sure to enter in TurboTax that you made these payments. Reference this article: Where do I enter my estimated tax payments? 
4. Going forward into future tax years, I recommend that you do plan to make estimated tax payment each quarter. Here is a great IRS resource that discusses the entire process: Pay As You Go, So You Won’t Owe: A Guide to Withholding, Estimated Taxes, and Ways to Avoid the Esti... 

I hope this information is helpful, @Pmobley1! I will keep eyes on this thread in case you have a follow-up question. Thank you again for your great question!

[Pmobley1]

Thanks for the detailed breakdown!

[Katie-P]

Thank you, @Pmobley1! 

By the way, I saw your other question about internet expenses. You can absolutely take an internet expense deduction. You do need to consider how much of your total internet for the year was used for personal purposes vs. for the self-employment. On your tax return, deduct only the percentage that is used for the business. I hope that helps! 

[RAHOWARD]

The reason I came up with the extra $200 in withholding from my regular job was: 

15% of $25k in freelance = $3750 in probable taxes 

$3750 divided by 26 paychecks = $145 approximately 

(I set it to $200 just to be extra careful!)

So I figured after the extra withdrawals I set up at the end of the year there shouldn't be any more owed - and maybe even still a little return back. 

Does that make sense? That means I shouldn't have to pay a quarterly amount if I do this, right? 

Thanks for the help! 

[VolvoGirl]

Yes that makes sense. That should cover the self employment tax.  Don't forget the extra 25,000 income will also increase the regular income tax on all your income.  And don't forget state taxes.  

[RAHOWARD]

Cool - thankfully I live in Florida where there is no state income tax 🙂