My son is self employed, 1st year filing taxes, should he pay estimated tax?

[dpugachev]

Hello! My son started working this year (self-employed) and will be filing his own tax return for the first time (he had no income before).  His income will be above the threshold, and I'm wondering if he has to pay estimated taxes throughout the year, or just pay the total amount for the year when he files?  I've read that if you didn't have tax liability before, there will be no penalty on estimated tax... please advise.  Thanks!

[DanPaul02]

He should be paying estimated taxes.  If he owes more than $1000, then there may be a penalty accessed.

[dpugachev]

Thanks, I was asking because I read the following on IRS web site (https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes:(

You don’t have to pay estimated tax for the current year if you meet all three of the following conditions.

• You had no tax liability for the prior year
• You were a U.S. citizen or resident for the whole year
• Your prior tax year covered a 12-month period

It seems that he does not have to pay estimated tax because he meets all three conditions, so I welcome any clarifications... thanks!

[macuser_22]

He does not meet the first requirement if this is his *first* tax return.  He does not HAVE the prior years tax return.

Also if  there is state tax then the state requirements will be different.

[dpugachev]

Thanks!  I do understand that the state tax requirements may be different, I'm just asking about the federal portion.  The first requirement is clarified in the following paragraph on IRS web site:

"You had no tax liability for the prior year if your total tax was zero or you didn’t have to file an income tax return."

He did not have to file an income tax return for the prior year since he had no income, so I'm not sure why it's not satisfied...

[DanPaul02]

In case of attempting to have an underpayment penalty waived, an IRS agent may agree with you.   When you go into a dispute like this, it sometimes makes a difference if you truly believe what you are saying.  It will not work with every agent and they may or may not agree with you.  It would be much safer to estimate the taxes that will be owed and to make the estimated payments.

[fanfare]

pay 15% estimated tax for the SE tax you will pay that no matter what.

I agree he does not have to make estimated payments because:

• [he] had no tax liability for the prior year

when you file check the box on estimated worksheets/forms that says last year's tax was zero.