Spouse's W2 income impact on estimated tax

[rwhalen1]

Hello,

I am married and just started my own business as an independent hair stylist (booth rent).  We both have always been W2 employees & have always filed jointly.

Does my quarterly tax payments need to include my spouses at all?

Can I just estimate just my earnings for this business and pay those quarterly and not worry about the broader family tax return?

[Holly W]

Hello @rwhalen1 
Thank you for being here today, we are so happy to have your participation.

To answer your question, you can make your estimated payments based solely on your Self employed net earnings.  When filing your tax return as Married Filing Jointly any estimated taxes that are paid will be entered on your joint tax return as a tax payment, regardless if you filed those estimated taxes as an individual or jointly.

Your spouse's taxes being withheld from their wages on a W-2 will also be entered on your joint tax return as a tax payment along with the estimated taxes that you have paid.

I hope that answers your question, if not I am happy to explain further!

Cheers,

Holly W

[rwhalen1]

Thank you!

So if I expect to bring in gross $80,000 and have $20,000 in expenses, then I could do a simple estimate for $60,000 and not worry about all the "joint" information (real estate taxes, child deductions, spouse income/taxes, etc...).  Correct?

Using the TT tax caster, I really do not understand the numbers.  Using $60000 as net income, there are all kinds of deductions, etc...   I do not know if this would include both federal and self employment taxes...  My taxable income has to be higher than $23K

Estimated amount owed

-$10,932

Estimates change as we learn more about you

Income

$60,000.00

- Deductions

$36,112.00

Taxable income

$23,888.00

Marginal tax rate

12%

Total Federal tax

$10,931.73

- Credits

$0.00

- Payment/Withholdings

$0.00

+ Alternative min. tax

$0.00

+ Additional taxes

$8,477.73

[Holly W]

Hello @rwhalen1 
Yes, for figuring your estimated taxes for each quarter.  
The tax caster may not necessarily work for this situation due to not having the full picture for the puzzle.  
I would rely on the IRS 1040-ES Worksheet to determine your quarterly estimated tax payment's. 

Holly W

[rwhalen1]

Hello,

Thank you! I do have one follow up question.

When I estimate my taxes, should it be on my gross sales or on my net profit?

I was wondering if I should subtract monthly expenses (booth rent, software subscription, supplies purchased) and then calculate my taxes on the remainder.

If I do that, I would imagine I would not be able to write those off...  

Thank you!

Ryan

[Holly W]

Hello @rwhalen1 ,

Yes, you would want to make your estimated tax payments based off of your net monthly income.

Keep in mind, these are estimated tax payments, so it is based off of your estimated net income.  When  you do file  your tax return, you will fill out Schedule C.  When filling out Schedule C, In part I,you will first report your Gross Income for the Year, Cost of Goods sold if applicable, to come to your gross income.  Part II you will report your expenses for the year to determine your Net Income or Loss.  Whether you used certain expenses to determine your Self employed taxes will not deter you from using those expenses when you actually file your tax return.  Here are a couple of links that might help you.

The Self-Employment Tax 

A Guide to Self-Employment Taxes for Contractors, Freelancers, and Beyond 

Let me know if you have any additional questions, I'll be happy to help!

Cheers!

Holly W

[VolvoGirl]

The 8,477 additional taxes is the Self Employment tax.  You owe that in addition to the regular income tax on all your income including the Net Profit on your business income.  You should consider the W2 income.  The W2 withholding might not be enough to cover the  regular tax on all your income.  It's all combined on your tax return.  

You pay Self Employment tax on $400 or more of net profit from self-employment in addition to any regular income tax. You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400. The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare. So you get social security credit for it when you retire.

 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.)

Here are the blank Estimates and instructions…..
https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Or you can pay on the IRS website. Be sure to pick 2023 1040ES payment
https://www.irs.gov/payments