Estimated Income Taxes...What do I do ?

Discussion in 'Archived Threads 2001-2004' started by Thomas Reagan, Jul 31, 2002.

  1. Thomas Reagan

    Thomas Reagan Stunt Coordinator

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    My wife recently began working again follwing the birth of our first child. She is a Licensed Clinical Social Worker and had been employed by the Commonwealth of Massachusetts until the little guy came along.

    She recently began working again, "independently contracting." She did adoption case evaluations for which she was paid a fixed amount for each report.

    She is about to receive her first compensation check, and since she acts as an independent contractor, she will be paid the gross amount: no payroll taxes or social security are taken out.

    This is where I'm in the dark, and after stumbling through the IRS web site for help, I'm hoping someone here might be able to offer tax advice.

    Specifically: I know I am supposed to pay estimated taxes for her on a quarterly basis, or be subject to severe tax penalties. What forms should I be using? Do I have 30 days from the end of each quarter to pay the estimated tax(es)? How can I compute the amount? Is it true that she has to pay social security twice: once as an employer and once as the company's sole employee. What else am I missing?

    Thanks in advance,

    Thos.
     
  2. GordonL

    GordonL Supporting Actor

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    Use Form 1040-ES to figure out and file your estimated taxes. The due dates for this year are/were Apr 15, Jun 17, Sep 16, and Jan 15. As far as SS, it depends on how her company is set up. If she is a sole proprietor or single owner LLC, it is paid as part of the Self-Employment tax using Schedule SE. Form 1040-ES has instructions on how to estimate the amount of Self-Employment tax.

    All of the information you need is on-line at the IRS web site but there is a massive amount to learn. If you don't have the time you should probably use an accountant that specializes in small businesses.
     
  3. Carl Miller

    Carl Miller Screenwriter

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    Don't know if this will help or not, but ES pmts are generally calculated using either 100% of last years tax assessment or 90% of the current years taxes.

    Last years is pretty easy to figure, you just take last years tax liability, divide it by four and make that amount your 4 equal payments. So if your tax liability was $4,000, you'd make 4 payments of $1,000 on each quarterly due date.

    The current years taxes is more difficult to figure out because you basically have to maintain your books and figure your tax liability on your income for each quarter. If you do this, as long as you pay 90% of your tax liability for each quarter, you'll avoid the penalty for underpayment.

    The 2210 form is also something worth familiarizing yourself with as it is used to explain an underpayment to help avoid getting penalized. It's mostly used by people whose income is seasonal, like landscapers for example who make the bulk of their money in the spring and summer. Their payment would be less in winter or fall, and this form is used to excuse that to avoid underpayment penalty.

    There really is a lot to know on this subject, with a bundle of little regulations, so it might be helpful to let an accountant get your set up for the first year to start on the right track. The IRS does make a couple of decent publications on ES Payments, one of them I think is Pub 505 and there's another one I don't recall the number of. Worth a call to their customer service or forms line to order them and give em' a read.
     
  4. Sarah S

    Sarah S Second Unit

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    Generally, the SE SSA tax is 15.30% for 2002. This does include the Medicare (HI) portion. Employee SS tax is 7.65%.
     
  5. Jonathan Smith

    Jonathan Smith Stunt Coordinator

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    One other thing I remember reading is that if you file your tax return by January 31, you don't have to pay estimated taxes for the last part of the year (Sept-Dec). I also noticed when I was reading a little about this stuff that (leave it to the IRS) the year is NOT evenly divided into four quarters. It goes something like Jan-Mar, Apr-May,Jun-Aug, Sep-Dec.
     
  6. Julian Reville

    Julian Reville Screenwriter

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    Ah, yes. Welcome to the Estimated Tax club, AKA the 50% bracket, AKA the Assume the Position Club.


    Paying both employees and employers "contributions" really bites.
    I am so looking forward to reaching the age when I can start taking OUT of Social Security, rather than putting IN.

    Now if that damn asteroid just won't hit in 2019, I can start collecting....
     

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