I just started a small business earlier this year and I don't believe I have made more money than my startup costs just yet (I will do the math to confirm, but I think I have at best broken even). I don't have any other income this year, though in the past I worked a FT job and received a W2, withholding done by my employer.
My husband has a well-paying FT job where they withhold taxes for us. I'm trying to understand if I am obligated to pay quarterly estimated taxes on my self-employment income/our overall income, or if we can just adjust the withholding his company does to account for that. Could someone help clarify for me? Thank you!
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If you file a joint return (married filing jointly) then you are required to pay into the system (by any combination of withholding and estimated payments) an amount that is at least:
a. 90% of this years's tax liability, or
b. 100% of last year's tax liability (or 110% for higher income earners), or
c. enough that you owe less than $1000 when you file your tax return.
The IRS does not care how they get their money, just that they get it on time. If your spouse's work withholding normally exactly covers your tax liability, then you need to make estimated payments to cover the net profit (income after expenses) from your self-employment. Probably figure 35-40% of net profit (assuming you are already in the 22% bracket, plus 15% self-employment tax.)
Your spouse could also change their W-4 so that more tax was withheld, to cover the estimated profit from your business. You don't have to make payments if the dollar amount is covered by his withholding.
Of course, if you have no net profit, you don't need to pay extra this year, although you will want to plan for that next year. Also, be mindful that if your startup includes assets, they must be depreciated according to the usual methods. And if your other startup costs are more than $5000, they are not fully deductible in year 1. Some portion is deductible, but the rest are spread out over 15 years. I don't know the formula but I could get someone to look it up (turbotax has it built in, of course).
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