Estimated tax for CT and IRS

[JTABACK17]

Just started a business in mid July and had profit starting in August. How do I estimate that income and include it with a part time salary job to make payments this year? When are the state and federal prepayments due?

 I plan on opening a SEP so how does that change the estimating?

Thanks

[AdamNe]

Hi @JTABACK17  ,

Congrats on the new business! 

To combine all your income together and get a good picture of what you are looking at for total tax liability, you should visit our TaxCaster. There, you can get an idea of what your total "underpayment" will be at the end of the year. When you are adding the income from your business, add your net income (after expenses). Your SEP contributions count as an expense toward this calculation. 

As far as paying estimated taxes, here are the quarters and due dates of each payment: 

1st Payment	January 1 to March 31	April 15, 2021
2nd Payment	April 1 to May 31	June 15, 2021
3rd Payment	June 1 to August 31	September 15, 2021
4th Payment	September 1 to December 31	January 18, 2022

So, if you haven't made any payments yet, you will want to make a payment that is as close to the underpayment you determined with the TaxCaster on or before January 18th. When you file your 2021 taxes, TurboTax will give you the opportunity to estimate your 2022 income so you can prepare vouchers to make more accurate estimated tax payments toward 2022. 

The same schedule and advice above applies to your state as well. 

[KochuK]

Hi JTABACK17, thank you for joining TurboTax Special Form today.

Congrats on starting a business in July which turned profitable in August. 

Assume you are a sole proprietor or a Single Member LLC, you would report your self employment income and expenses in Schedule C; hence you might consider using a spreadsheet or a bookkeeping program to record such business income and expenses.

Once Schedule C net profit is determined, there are other tax considerations such as qualified business income deduction, self employment tax liability (Social Security and Medicare taxes approx. 15.3%) half of which is also a deduction. All these are calculated by TurboTax software.

The net profit also determines the maximum amount you can contribute to a SEP-IRA, which is an adjustment to income. There is special rule for "Deduction Limit for Self-Employed Individuals." Please refer to pages 7 and Chapter 6 of IRS Pub 560 Retirement Plans for Small Business.

https://www.irs.gov/pub/irs-pdf/p560.pdf

I recommend that you set up a Test ID using TurboTax Online 2020 program to project the 2021 income tax outcome for both Federal and CT state.

Federal estimated tax payment - 3rd payment was due 9/15/2021, 4th payment 1/18/2022. If cash flow permits, you should make a payment as soon as possible.

Direct Pay With Bank Account

https://www.irs.gov/payments/direct-pay

Form 1040-ES 2021 Estimated Tax, vouchers on last pages

https://www.irs.gov/pub/irs-pdf/f1040es.pdf

CT state income tax rates range from 3% to 6.99%. Estimated payment rules are similar to that of Federal. Due dates: April 15, June 15, September 15, January 15

Form CT-1040ES tax payment coupon

https://portal.ct.gov/-/media/DRS/Forms/2021/ESForms/CT1040ES-flat0121.pdf

Page 8 of above link has instruction if you like to pay electronically.

Hope the above helps.