I am self employed. If i overestimate my earnings am i still required to pay the estimated taxes?

Question

I might take a management position, which will cut my untaxed income by about 50% I don't want to get stuck with a $2000 quarterly payment

Answer 1

Go to the CRA website:

http://www.cra-arc.gc.ca/E/pub/tg/p110/p110-e.html


There are three options for paying installments:

1. Pay the amount CRA tells you to pay
2. Send 1/4 of your 2006 taxes at each quarter
3. Send 1/4 of your 2007 taxes (estimate) at each quarter

Options 2 and 3 will result in instalment interest and/or penalties if you are incorrect.

Answer 2

All you're really required by law to cover (without interest and penalties) is the amount from the previous year.

For example, if my tax balance due for 2006 was $4500, resulting mainly from Self Employment taxes, and I had paid in $6000 for the year already, I'd receive my refund as usual (if I didn't apply the refund to the 2007 tax bill).

Then if, in 2007, something happens and I don't have the money to make estimated tax payments for the second half of the year but paid in $4500 during the first half of the year, there would be no interest or penalties against the remaining balance due on the 2007 tax return because I'd have already paid in as much as was owed for 2006.

Also... federal income taxes withheld from wages are considered to be paid in throughout the year, therefore possibly eliminating the need to pay estimated taxes altogether.. for whatever year is applicable.


I hope this answer helps. It may be beneficial to take the management position because of other benefits... such as health insurance and probably a 401K, etc. You may be able to do both, but cut back on the personally-owned business or have someone trustworthy run it for you, depending on the volume of work involved.

Good luck with it all.

Answer 3

You are only required to pay in 90% of the tax you will owe on your 2007 return. You can lower or stop paying estimates whenever you want.