Last year I transitioned from my FT job and now work as an independent consultant. My income comes from a monthly retainer for a Canadian firm. I send them a monthly invoice and there is no 1099 form involved. I have been making my own Estimated Tax payments to the IRS and Massachusetts at roughly 10% & 5% of my billings. I am wondering if this is adequate, especially on the Federal side since it supposed to cover my social security and income tax.
Can Turbotax provide me with specific advice on the proper estimated tax amounts in case I need to increase payment before the end of the tax year?
Hello EdA-141, that is a great question, and congratulations on the new venture!
Estimated tax payments should take into consideration all of your income, including foreign sourced income. In order to estimate your taxes, TurboTax has a wonderful calculator where you can input your information and see what your tax liability will be for the given tax year:
https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
Generally, most taxpayers will avoid an underpayment penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. You can read more about this on the IRS' website:
https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes