Tax question. Please help.

K

KimDW

Cathlete
Is anyone here self-employed and do estimated quarterly tax payments?

Here's the situation.

My husband lost his job last July. He worked as a repair tech on brass musical instruments (trumpets, tubas etc...) and then around mid September found a job (sort of) with another repair shop that was looking for a brass specialist. They said that for now instead of hiring him on salary and as an "employee" he would basically be self employed and bill them for his hours. This is how the woodwind repairman started there also. So of course there are no taxes taken out of his check. He also plays alot of side jobs (like with churches, or brass quintets) that we always ending up paying taxes on since there aren't any taken out. His daily job with the repair shop some weeks can bill $500 but then the next week only bill $200. So it's not like a steady known amount each week.


Here are my questions:

If we make est pymts does he pay into Social Security? Or is it just Federal and State.

Somewhere I heard that the pymts are based on your prior years income. How can we make est pymts when his income for last year is most likely going to be bigger than this year? Or is the 1st pymt due April 15th based on the current years Jan/Feb/Mar? Does that make sense?

I'm going to call our accountant and ask a few more questions. The problem is he's about 2 hours away and I really need to find a local person to use.

Thanks,
Kimbra
 
Your payments will go toward social security there is no paticular allotment of payment .So really you just pay the total of both no seperation(exept on the form at the end of year)Social security is totaled into the amount owed to the Irs but you fill out a form showing what soc.number the money goes into. .payments are based on prior year really in your situation you would have just a rough guess.Just be prepared to pay out the ying yang.:( You do have to do state est payments seperate from federal.

edited for better explantion:)
 
Call your local IRS department or go to irs.gov. I felt weird calling them before thinking they would flag my name and come after me. But that is my paranoia! Melissa
 
I have someone here from the IRS this week renting a room. We've worked with him forever and he loves to give advice! I'll ask him when he pops his little head back in. I won't give him any info on you so they can't come after you. Hehehe.

Susan

"Until one has loved an animal, a part of one's soul remains unawakened." - Anatole France

http://www.picturetrail.com/dogs2birds
 
Okay, here it is straight from the mouth of the IRS...WARNING: I just typed and he talked. I don't even know if it makes sense. He says it does. :) Sorry for the typos and inconsistencies - I was in a hurry! Good luck!!!

Federal income tax and social security have to be paid together to the IRS. Your state tax is paid separately and you'll have to do your estimate with the state depending on their requirements.

No, the payment is not based on last year. You would estimate for the income that he has made for Jan, Feb and March (for your April payment) and carry it to a yearly amount so that you can get the right tax rate. Then three months from now you would have to do the calculations on the total of six months and carry it to one year and so on. If you're going to owe over 1,000 total tax have you paid in at least 100% of last year's tax or 90% of this year's tax? If so, then you don't have to pay a penalty. If not then you have to pay a penalty. When he makes his money, it is suggested you calculate your social security - get form 1040 ES and keep track of it throughout the year based on the tax rates and deposit the appropriate amount of tax and social security.

Example: Let's say that in the first 3 months including all of his income he had $10,000 and $1,000 of that was self-employment you would calculate the self-employment tax on $4,000 ($1,000 x 4 for a quarterly year) as if he was making $4,000 in the year for self-employment. And he would calculate the tax based on the $40,000 less the standard deduction and less the personal exemptions as shown on the worksheet on the 1040 ES form. The total tax based on that would be the self-employment tax which would be around $612 plus the tax based on the $40,000 taxable income. That would be what he would have to pay at the end of the year. Divide that by 4 and take out what he has had withheld at his other job(s). Deposit that balance as an estimated tax payment.

Once another three months pass, you are going to take the total amount made on self-employment and multiply it by 2 to estimate the yearly self-employment. Then add the wages and the self-employment income for those six months, multiply by 2 to go to a year and calculate the tax. Add the tax and that self-employment tax and divide it by 2 to figure what should be deposited as of that time. Subtract from that figure the amount withheld by the employer during those six months and the amount deposited by you previously as estimated taxes. The difference should be what you should deposit at this time. Follow the same pattern during the rest of the year. That's it.


Susan

"Until one has loved an animal, a part of one's soul remains unawakened." - Anatole France

http://www.picturetrail.com/dogs2birds
 
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