self-rmployed taxes?

Question

I was wondering what are the rules on filing your taxes being self-employed. I've been told to file quarterly but also if you file and pay before jan 31 of the next year its the same thing. When do they penalize you? Cant you just hold it back in a saving account then pay when you file next year? The reason i ask is because my work is real seasonal. I work real strong for four months then its kind of dead. From Jan to may theres almost hardly any work. I have only made around 6000 dollars this quarter, but with 2200 dollars worth of bills every months i cant save money..From may to oct is when i make all my money..

Answer 1

You file a tax return annually. But as a self employed individual you are requrired to PAY quarterly.

Income taxes are due when the income is earned. That's pretty straightforward when you're a W-2 wage earner; it's held back from every paycheck. The situation gets a bit muddy for self-employed folks though. Most do pay in 4 equal installments but there is nothing that says you have to pay that way if your income is cyclic or seasonal.

In your case, you should probably make the majority of your payments with the June and Sept payments with a minimal amount in April and January. This way, your tax payments will more closely match your income patterns which is what the law requires anyway.

Your financial records should reflect the seasonal nature of your income in case the IRS should ever question the matter. That's not too likely if your business is typically seasonal such as landscape work would be for example and the IRS is aware of that.

The IRS generally will penalize you if you have not paid in enough over the year to cover your tax liability. The penalty is waived under the following circumstances:

1. Your balance due with your return is $1,000 or less.
2. You file and pay the balance due by 1/31.
3. You have paid in at least 90% of your total tax liability.
4. You have paid in at least 100% of the prior year's tax liability.

The 4th option is the one that savvy taxpayers fall back on. Next year's total estimated tax is automatically the same as the current year's liability and they pay that much in via the estimated payments over the year. Match your payments to your income stream and as long as you've paid in that much by the final payment due date of 1/15 you'll never have to worry about a penalty.

BTW, socking it all away in a savings account WILL attract penalties and interest for underpayment of estimated taxes. Just make your payments when you have the money -- big ones in June and September and little or nothing in April and January to match your income stream and you'll be fine.

Answer 2

You file quarterly, but you don't have to pay equally each quarter. You may file on the basis of what you have actually earned for each period. Look at 1040-ES and IRS pub 505.

It is not the same thing just paying by Jan. 31.

You avoid penalties if you pay equal amounts each quarter, or pay the seasonal amount as I mentioned above, and either pay 90% of your tax due, 100% of your prior year taxes, or owe less than $1000. It is all explained in 505.

Answer 3

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

http://www.irs.gov/publications/p505/15008e12.html

If you owe atleast a thousand dollars, after withholding and credits etc, by any of the four deadline dates for filing estimated taxes during the year and

1 You expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2007 tax return, or


2.100% of the tax shown on your 2006 tax return. Your 2006 tax return must cover all 12 months.

, then you need to make estimated tax payments.