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Justin52
Level 1

Passion Project about to turn to Self-Employed?

I've been working on a passion project for a few years, without income, and potentially will soon start gaining an income. The lead of the project lives in another country, and says due to the employment rules of the country when he's able to pay us it'll be "contractor" type pay, which seems to come under "self-employment". 

 

I've spent the past several hours researching, figuring out what my state taxes and federal taxes would be, finding out about the self-employment tax, and something about quarterly payments... The amount of pages of tax information and that information leading to other information and just endless pages that seem like they're just trying to make a person mess up their first time..

 

Can I get some help on what exactly I should be doing? If I start making an income this or next month, do I file the federal and state taxes for this year next year? When do I file self-employment taxes and start paying quarterly? How am I supposed to "estimate annual income" if my income will potentially be unstable?

1 Best answer

Accepted Solutions
DaveF1006
Expert Alumni

Passion Project about to turn to Self-Employed?

Well, I can give some general advice without knowing about your specifics. Let me just touch on some key points and hopefully some of this will be useful information for you carry forward. 

  1. When you start any business venture, you will be expected to pay federal and state income taxes.  IRS and State will expect you to make estimated tax payments quarterly. As a rule of thumb, Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. In the IRS. Here is an IRS guideline to use regarding estimated taxes. it does state that you need to estimate the amount of income you expect to earn for the year. 
  2. Just remember if you over estimate, you will be refunded the excess amount next year.
  3. Please refer to this Turbo Tax link for more detailed instructions how to print the estimated tax vouchers and mailing instructions.
  4. You file your 2021 tax return in 2022. The purpose of paying estimated taxes is to ensure that you don't have a balance due of more than a thousand dollars next year.
  5. As far as estimating your income, you probably don't have a clear idea this year what your income is going to be.  Next year, you may have a clearer picture of your income thus your income prediction may be more precise.
  6. Hopefully this gave you some food for thought and don't hesitate to ask more questions in this thread.
  7. One last thing I may add, it is helpful to have a good bookkeeping and accounting system to track your income and expenses.  You may wish to select a system that will import easy in your tax return.  
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1 Reply
DaveF1006
Expert Alumni

Passion Project about to turn to Self-Employed?

Well, I can give some general advice without knowing about your specifics. Let me just touch on some key points and hopefully some of this will be useful information for you carry forward. 

  1. When you start any business venture, you will be expected to pay federal and state income taxes.  IRS and State will expect you to make estimated tax payments quarterly. As a rule of thumb, Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. In the IRS. Here is an IRS guideline to use regarding estimated taxes. it does state that you need to estimate the amount of income you expect to earn for the year. 
  2. Just remember if you over estimate, you will be refunded the excess amount next year.
  3. Please refer to this Turbo Tax link for more detailed instructions how to print the estimated tax vouchers and mailing instructions.
  4. You file your 2021 tax return in 2022. The purpose of paying estimated taxes is to ensure that you don't have a balance due of more than a thousand dollars next year.
  5. As far as estimating your income, you probably don't have a clear idea this year what your income is going to be.  Next year, you may have a clearer picture of your income thus your income prediction may be more precise.
  6. Hopefully this gave you some food for thought and don't hesitate to ask more questions in this thread.
  7. One last thing I may add, it is helpful to have a good bookkeeping and accounting system to track your income and expenses.  You may wish to select a system that will import easy in your tax return.  
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

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