Independant contractor was told to make quarterly tax deposits but i dont know what or why?

Question

i have been an independant contractor for 3 yrs and this year my CPA told me i need to make quarterly tax deposits... i am not sure what it is? how much to give? why i have to give it? why didnt i have to for the past 3 yrs? im sooo confused and have no idea what the heck i need to do... do i have to give quarterly deposits or can i just pay at the end of the year? any help would be great.. really lost here

thanks i get why i have to but i havent owed for the past 3 yrs i always break even so do i still have to do this??

Answer 1

Good question why you haven't had to do it the last three years. I'm not sure just how you broke even if you didn't pay anything in - did you get an Earned Income Credit? Maybe you are not going to get that for 2007, or aren't going to get enough EIC to cover your taxes.

It would have been real nice if the CPA had told you about how much you'd probably owe.

To file quarterly, you need a form 1040ES - you can download that at irs.gov

You have to figure approximately what you expect to owe for the year. Then divide that by 4, and send that amount in every quarter - the instructions for 1040ES will tell you when and where to send it.

If you just pay at the end of the year, you could be subject to penalties for underwithholding if you owe very much.

Answer 2

If your CPA says you have to make quarterly deposits then I would hope he has also given you the forms. We just print ours off the computer for all four quarters when we do the client's return (or the extension) and send out revised ones as necessary throughout the year.

Paying quarterly should be the norm for anyone who is self-employed full-time. If you pay on an annual basis without penalty then you are not earning very much.

Just one observation - if you are asking this here instead of asking your CPA, why? If you do not trust your CPA to give you an answer, maybe it is time to find another CPA.

Answer 3

Your CPA can give you the forms you need and tell you the amounts to send.

If they are not willing to do this for you, find another CPA, they are a dime a dozen.

The reason you have to pay quarterly is because you owe the IRS money at year end. The IRS has decided that people who know they are going to owe money cannot wait to pay in April, they must make "quarterly tax deposits" kind of similar to employers. Or they pay a penalty and interest because they held on to the IRS's money.

Here is the IRS web page concerning estimated tax payments and when they are due:

http://www.irs.gov/publications/p505/ch02.html

Good luck, taxes suck

Answer 4

Ask your CPA, Genius.

In short, taxes are due when the income is earned. Since your not subject to withholding you have to make quarterly estimated payments using Form 1040ES. If your CPA didn't explain this to you, it's time to find a new CPA.

Answer 5

Tax payment made quarterly called advance deposit of tax. It imposed to the taxpayers, usually business firm, corporate and individuals whose previous years tax payments were consistent and was above a line.

Basis on the last years tax liability, advance tax will be deposited quarterly for current year and the fourth quarter will be deposited along with the return in actual.

Answer 6

Quarterly tax deposite are required if you don't have withholding taxes taken out of your earnings.
Failure to pay a sufficient amount of taxes through withholding and/or estimated tax payments subjects you to an underpayment of tax penalty which is computed at about 8% per year.
By payings estimated taxes you can avoid this penalty. Estimated taxes are paid using form 1040ES and an equivalent state form.
You can avoid the penalty by paying an amount equal to your prior year taxes if your adjusted gross income is under $150,000. If your adjusted gross income is more than $150,000 then your estimates would have to be based on 110% of the prior years taxes.

Answer 7

ok right this is what you do. you're taking a hundred% of ultimate twelve months tax and divided it by using 4 and then make a value each and every 3-month commencing in April. Now the final value of the 4th quarter is due in Jan of next twelve months. by using then you would desire to get an in depth appropriate of ways lots you owed on the tip of the twelve months. so which you're making an est. value on the factor of 80% of the present twelve months taxes. Get it? Now as on your EIC, don’t think of too lots approximately it. in case you over pay on the tip of the twelve months then you gets it as a refund. in case you below pay your predicted taxes then you will pay interest with the tax you owed so as that may not good. So purely now situation approximately making predicted taxes for federal and state in case you have state earnings tax. have been given it? good