Two questions I've been unable to find clear answers for

[Jonathan_H]

Hello all, thank you for the opportunity to participate in this event and gain some clarity in place of confusion.

Here are my main questions:

1. Regarding sole proprietor taxes in a very low income scenario:
   • If my only source of personal income in a year is $2,000 USD from freelance online work and sales of digital goods, do I still need to pay taxes on that, or do I not need to file taxes that year at all?
   • If so, do taxes still need to be filed in quarterly estimated payments despite the low dollar amount, or can they be done yearly instead?
2. How do I estimate tax payments accurately when my profits are unpredictable and inconsistent?
   • I might make $400 one quarter, and $3,000 the next, but I have no way of knowing ahead of time. The amounts vary widely month-to-month, so using past quarters' profits isn't reliable either. There is no pattern, consistency, or correlation.

Thank you for your time and generosity in answering everyone's questions. It's really appreciated.

[MelanieCPA]

Hi @Jonathan_H 

Thank you for joining us today and for the great questions.  

1. If you are single and your gross income is less than $12,950 you are not required to file a tax return.  Keep in mind that there are benefits to filing such as building your self employment  benefit or applying for financial aid.  Here is a great link to the IRS website:  Who Should File a Tax Return?   I do recommend that you attempt to "Pay As You Go" to avoid any interest and penalties with the IRS as you will still owe self employment tax even though you may not owe federal taxes.  The law sets the self-employment tax rate as a percentage of your net earnings from self-employment. This rate consists of 12.4% for social security and 2.9% for Medicare taxes.
2. Estimating taxes for inconsistent income can be tricky.  So it is recommended that you "pay as you go".  Estimating your taxes each quarter based on your earnings year to date should ensure you get pretty close to your tax liability.  Here is a tool that you can use to assist you:  Estimated Tax Payments .  This is another good reason to file your tax return annually, so if you do over pay you can claim that refund due to you!

Thank you!

Melanie, CPA

[Jonathan_H]

Thank you again @MelanieCPA  for your time, and your very helpful information for my unusual situation. It gives me a better understanding for how to handle things more correctly.

[VolvoGirl]

The first answer is partly wrong.   If you have self employment income of $400 or more you do need to file a 1040 tax return (even if it's less than the Standard Deduction) and pay self employment tax.     

[Jonathan_H]

@VolvoGirlThank you for helping to further clarify that important detail.