I established my LLC earlier this year (2/2023) to reserve my company name, etc. for a side hustle from the previous year (that I already paid my taxes for) to continue my art/coaching services except now as a proper business. However, I had not performed any services since the work I previously paid taxes for, until the past few months, and I am just now opening a separate business bank account (I probably should have done this sooner but I was not doing any work through my business yet so I did not see the need). Should I have paid quarterly self-employment taxes already? And if so, on what if I have not made any money through the business yet? Or if not, when should I do that? I just quit my part-time job in July and switched to being fully self-employed and I am trying to get a better understanding of the business/finance end of things. Honestly, any information/explanations on how to handle self-employed finances/LLC/taxes would be greatly appreciated as I am mostly self-taught!
Thank you so much for your time!
Hi @GemmIsabelle !
IRS wants you to pay estimated tax payments if you expect to owe $1,000 or more in taxes when you file. Be mindful that when they say the term "taxes owed", they are referring to your whole tax liability (see below).
If you expect that your line 24 is going to be over $1,000, then you must make estimated tax payments. The payments are made in April 15, June 15, September 15, and January 15 for the current tax year. If for the first 2 quarters you didn't have that expected liability, then they expect you to start the estimated tax payments as soon as your tax liability increases. Also make adjustments as the year goes by if needed.
For example, in April 30th, you weren't expecting to have any tax liability because you were unemployed. In June 1st, you started your business and you expect to pay about $1,200 in taxes. Then you have to make a $400 payment for the next 3 quarters.
For more information you can check this information from the IRS website: https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes
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Thank you so much for this question! Self-employment taxes are confusing and especially when you are just getting your business going. The IRS (and states too if you live in a state with income taxes) require quarterly payments of taxes estimated to be owed. The concept is really the same for employees, except the employer withholds estimated taxes for you and sends them to the IRS or the state on your behalf.
If you are just switching over from having some wages to all self-employment, you need to consider if you have net income from your self-employment. I suggest you use TaxCaster (https://turbotax.intuit.com/tax-tools/calculators/taxcaster/) and enter as much information as possible, both your jobs and self-employment. This will assist you with knowing If you are going to owe at the end of the year and what you might need to pay for estimates, if at all.
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