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I started a business in the middle of August. How much do I need to pay in estimated taxes on Sept 15?

I am a hair stylist who just moved from a salon where I was an employee (with taxes withheld) to another salon where I rent a chair, so I'm now self employed. I started an LLC for myself and began my business on 8/15. There were many startup costs, but by 8/31 I'd made a small profit (about $900). I expect to clear about $40k in profit by the end of the year. How do I calculate my quarterly taxes due 9/15? Based on the $900? Based on half of the expected $40k (since I only have Q3 and Q4 left in 2017)? Or do I need to pay 75% of the expected tax on $40k to catch up on three quarters of the year? (Not sure I could even afford to do that!)

2 Replies
Level 15

I started a business in the middle of August. How much do I need to pay in estimated taxes on Sept 15?

For the third quarter you will only consider the third quarter non waged earnings.

For the fourth quarter you will only consider the fourth quarter profits.  You do not need to pay estimated payments on the wages where taxes were already withheld.
Level 15

I started a business in the middle of August. How much do I need to pay in estimated taxes on Sept 15?

If you are 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…. 

Publication 334, Tax Guide for Small Business 

Publication 535 Business Expenses 

Home Office Expenses … Business Use of the Home

There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Home & Business return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....

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.

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

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