In February 2022, I switched from being paid by W-2 withholdings to being paid by 1099s as a self-employed contractor. My spouse continues to receive W-2 income and withholdings.
My 1099 income is unpredictable this year:
- Q1 & Q2 - $0
- Q3 - net $15,000
- Q5 - est. net $35,000
My and my spouse's combined est. federal taxes owed above withholdings for 2022 is $724. But it's possible I'll earn more in Q4. What should I do to cover myself?
(1) Submit a Q4 estimated tax payment of $1,000
(2) Submit a Q3 (late by a week) estimated tax payment of $500 AND a Q4 estimated tax payment of $500.
(3) Nothing until I know I will owe more than $1,000 in taxes then submit a Q4 estimated tax payment before Jan. 15.
(4) Other: Please specify
THANK YOU, TEAM!
p.s. I've hired an accountant but she doesn't kick in until end of September.
@1040se @selfemployment @estimatedtaxes
I've been self-employed for just over 15 years now. What I've always done (and continue to do) is to send the IRS 20% of my gross business income each quarter. Then come tax filing time when I deal with all the deductible business expenses, I've always been well within $1000 of my tax liability. I typically get a refund. But in the 2-3 years I've actually owed the IRS, it's always been less than $500 - so no underpayment penalty. Also, with such a low amount owed I don't have to deal with "payment plans". I just write the check and press on with business.
While the IRS does provide "worksheets" that you can use to figure your quarterly tax, in my own experience it always comes to 19-23% of the gross business income. So that's why I just automatically pay 20% of the gross each quarter and don't waste time fretting over the math.