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Level 2

Need help with self employed taxes and SEP IRA

Hello, this is the first year I'm only 1099 income and I'm really nervous about getting my taxes right.

 

I signed up for the Quickbooks Self Employed Live Tax Bundle and have my expenses separated into personal and business. I also organized the assets I want to claim. However, the part I'm really nervous about is my SEP IRA contribution.

 

I opened a new SEP IRA earlier this year but haven't contributed yet. I'm ready to make my deposit now, but want to understand how this all works. When I make my contribution, will Quickbooks update and reflect the deduction? Meaning will the contribution deduction reflect as a reduction on my owed quarterlies? Or will I have to file for a refund next year?

 

The second question I have is about the QBI deduction. I don't see that anywhere in Quickbooks, but I do qualify for that deduction. Will that show up in TurboTax? Will that show up as a deduction on my owed quarterlies or will I have to file for a refund next year?

 

Third question is about any possible refund. If I pay my quarterlies as Quickbooks calculates them, then do I still do a final filing next year? I'm used to W-2 way of paying which is just once in January/February then get my refund around March. Wouldn't Quickbooks calculate my quarterlies such that there is no refund in the end? Why over or under pay?

 

The last question is for my home office. Quickbooks only shows the standard deduction by square feet, but it also lists the real expenses next to it. Using itemized will be much bigger deduction for me, but is that something TurboTax will figure out for me? Using the itemized instead of the standard I mean.

 

Thanks in advance! Lots of questions. I actually subscribed to the Quickbooks SE Live Tax Bundle, but the link to talk to a CPA is broken - I'm talking to help support about that hoping they can get it working soon 😕

 

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Highlighted
Level 15

Need help with self employed taxes and SEP IRA

The QBSE is an accounting program not an income tax preparation software ... and it helps you to estimate your taxes it will not complete everything. 

 

I opened a new SEP IRA earlier this year but haven't contributed yet. I'm ready to make my deposit now, but want to understand how this all works. When I make my contribution, will Quickbooks update and reflect the deduction? Most likely not. There are so many moving parts on an income tax return and an accounting program can only track some of them.   

Meaning will the contribution deduction reflect as a reduction on my owed quarterlies?  Again most likely not but you can enter something to see. 

 

Best practice would be to wait for the end of year info so the TT program can tell you the max you can contribute ... at best you could contribute some with the rest later when you have all the figures.   You have until 4/15 (or 9/15 if you file an extension) to contribute to/ fund  the SEP ... the only thing you had to do by 12/31 is the opening of the account. 

 

The second question I have is about the QBI deduction. I don't see that anywhere in Quickbooks, but I do qualify for that deduction. Will that show up in TurboTax?  Yes, only on the TT program. 

Will that show up as a deduction on my owed quarterlies or will I have to file for a refund next year?  It is a deduction on the tax return that lowers your federal taxes automatically.  This is not taken into consideration for estimating your quarterly payments.

 

Third question is about any possible refund. If I pay my quarterlies as Quickbooks calculates them, then do I still do a final filing next year? Again, QB is only an accounting program... it doesn't take the place of the form 1040.    On your annual tax return you will report all your income and expenses on the Sch C which is part of the tax return. Then any adjustments & deductions are subtracted and a total tax bill is computed.  Finally, any estimated payments and withholdings are entered and the final bottom line amount is figured ... at that point you will either have a refund or a balance due.

 

I'm used to W-2 way of paying which is just once in January/February then get my refund around March. Wouldn't Quickbooks calculate my quarterlies such that there is no refund in the end? Why over or under pay?   Estimated payments are just that ... estimated.  The goal is to get as close to breakeven as possible however a return still must be calculated to see how you stand at the end.   If you overpay then you will get a refund,  if you underpaid you will owe.  The actual goal for estimated payments is so you don't owe a penalty for underpayment ... next year you can use the Safe Harbor method to pay the estimated taxes ... you take the 2019 tax liability and divide it by 4 to arrive at the minimum 2020 quarterly payment needed.    Then you avoid the penalty but may over or under pay because you are not using the current actual figures but simply relying on the prior year figures.  Some people do this and some don't ... you need to find the method that works best for you. 

 

The last question is for my home office. Quickbooks only shows the standard deduction by square feet, but it also lists the real expenses next to it.  Using itemized will be much bigger deduction for me, but is that something TurboTax will figure out for me? Using the itemized instead of the standard I mean.  The OIH expense goes on the Sch C as a deduction ... the QB program only uses the safe harbor method however in the TT program you can see if the actual expenses option will work better.   Also do not mix up the actual expenses OIH calculation on the form 8829  with the  Itemized Deductions on the Sch A ... they are not the same.  

 

 

 

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3 Replies
Highlighted
Level 15

Need help with self employed taxes and SEP IRA

The QBSE is an accounting program not an income tax preparation software ... and it helps you to estimate your taxes it will not complete everything. 

 

I opened a new SEP IRA earlier this year but haven't contributed yet. I'm ready to make my deposit now, but want to understand how this all works. When I make my contribution, will Quickbooks update and reflect the deduction? Most likely not. There are so many moving parts on an income tax return and an accounting program can only track some of them.   

Meaning will the contribution deduction reflect as a reduction on my owed quarterlies?  Again most likely not but you can enter something to see. 

 

Best practice would be to wait for the end of year info so the TT program can tell you the max you can contribute ... at best you could contribute some with the rest later when you have all the figures.   You have until 4/15 (or 9/15 if you file an extension) to contribute to/ fund  the SEP ... the only thing you had to do by 12/31 is the opening of the account. 

 

The second question I have is about the QBI deduction. I don't see that anywhere in Quickbooks, but I do qualify for that deduction. Will that show up in TurboTax?  Yes, only on the TT program. 

Will that show up as a deduction on my owed quarterlies or will I have to file for a refund next year?  It is a deduction on the tax return that lowers your federal taxes automatically.  This is not taken into consideration for estimating your quarterly payments.

 

Third question is about any possible refund. If I pay my quarterlies as Quickbooks calculates them, then do I still do a final filing next year? Again, QB is only an accounting program... it doesn't take the place of the form 1040.    On your annual tax return you will report all your income and expenses on the Sch C which is part of the tax return. Then any adjustments & deductions are subtracted and a total tax bill is computed.  Finally, any estimated payments and withholdings are entered and the final bottom line amount is figured ... at that point you will either have a refund or a balance due.

 

I'm used to W-2 way of paying which is just once in January/February then get my refund around March. Wouldn't Quickbooks calculate my quarterlies such that there is no refund in the end? Why over or under pay?   Estimated payments are just that ... estimated.  The goal is to get as close to breakeven as possible however a return still must be calculated to see how you stand at the end.   If you overpay then you will get a refund,  if you underpaid you will owe.  The actual goal for estimated payments is so you don't owe a penalty for underpayment ... next year you can use the Safe Harbor method to pay the estimated taxes ... you take the 2019 tax liability and divide it by 4 to arrive at the minimum 2020 quarterly payment needed.    Then you avoid the penalty but may over or under pay because you are not using the current actual figures but simply relying on the prior year figures.  Some people do this and some don't ... you need to find the method that works best for you. 

 

The last question is for my home office. Quickbooks only shows the standard deduction by square feet, but it also lists the real expenses next to it.  Using itemized will be much bigger deduction for me, but is that something TurboTax will figure out for me? Using the itemized instead of the standard I mean.  The OIH expense goes on the Sch C as a deduction ... the QB program only uses the safe harbor method however in the TT program you can see if the actual expenses option will work better.   Also do not mix up the actual expenses OIH calculation on the form 8829  with the  Itemized Deductions on the Sch A ... they are not the same.  

 

 

 

View solution in original post

Highlighted
Level 15

Need help with self employed taxes and SEP IRA

 

If you are new to being self employed and  acting as your own bookkeeper and tax preparer you need to get educated ....  

If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-Misc for some of your income but you need to report all your income.  So you need to keep your own good records. Here is some reading material……

IRS information on Self Employment….
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center 

Publication 334, Tax Guide for Small Business
http://www.irs.gov/pub/irs-pdf/p334.pdf 

Publication 535 Business Expenses
http://www.irs.gov/pub/irs-pdf/p535.pdf 

Home Office Expenses … Business Use of the Home

https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

https://www.irs.gov/pub/irs-pdf/p587.pdf



There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Self Employed return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
http://quickbooks.intuit.com/self-employed


Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C.  You pay 15.3% for 2017 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 do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040.  The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 line 57.  The SE tax is in addition to your regular income tax on the net profit.
 


PAYING ESTIMATES
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017  SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.

You must make quarterly estimated tax payments for the current tax year (or next 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 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 (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

Highlighted
Level 2

Need help with self employed taxes and SEP IRA

Awesome information, thank you so much!

I'm going through all the links you posted as well - so much to learn but this puts my mind at ease regarding the IRA contribution!

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