self employed


O

Oradba Linux

I worked on W2 from the beginning of this year for 4 months
and the next 3 months i have been working as an independent
contractor on 1099 . I have not yet paid taxes for the
income earned during this period. Can i wait till the end of
the year to pay the taxes or pay right now ? Do i have to
pay any penalty for late payment ? If you need any more
information let me know .
 
E

ed

Oradba Linux said:
I worked on W2 from the beginning of this year for 4 months
and the next 3 months i have been working as an independent
contractor on 1099 . I have not yet paid taxes for the
income earned during this period. Can i wait till the end of
the year to pay the taxes or pay right now ? Do i have to
pay any penalty for late payment ? If you need any more
information let me know .
The penalty for underpayment is 4% simple interest for the
time is remains underpaid. You can avoid underpayment
penalties by applying your Withholding to the first and
second quarter instead of equally over a 4 quarters, and
then computing your required third installment (due 9/15/04)
on the Annualized Income Method

Essentially you will figure your taxable income for the
first 8 months, multiply it by 1.5 and compute the annual
tax on that amount. Then multiply that tax by .675 and
deduct what you have paid in withholding. Send a check for
that amount to the IRS using voucher form 1040ES. For the
last quarter installment due 1/15/05 compute your full year
tax, muliply that by .9 and deduct what you have already
paid and send them a check. The remaininig roughly 10% is
due wiith your return in April 05. You will have a small
penalty, probably, for not making a 6/15/04 payment but the
only way to reduce that is to send a late payment now.
That would save the interest from now until Sept 15 which is
about 1/2 the penalty you'll incur from 6/15 to 9/15.

When computing the annualized payments use the Schedule AI
of form 2210 because you'll have to complete one wiith your
return to avoid a penalty. It will automatically reduce
your payments to meet the "prior year's tax safe harbor" if
that is less than the annualized payment. Don't try to
estimate a full year's tax now, but if you don't make as
much as you anticipate, that safe harbor will redue your
last installment in January.

When computing your income don't forget phaseouts and SE
Taxes and yuou can deduct 100% of your Health Insurance
costs if you meet those requirements. There's a quarterly
installment calculator availiable at
www.edcosoft.com/qitc.html or you can try to wade through
the obtuse instructions and worksheets in Publication 505.

Good luck,
ed
 
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J

John H. Fisher

Oradba Linux said:
I worked on W2 from the beginning of this year for 4 months
and the next 3 months i have been working as an independent
contractor on 1099 . I have not yet paid taxes for the
income earned during this period. Can i wait till the end of
the year to pay the taxes or pay right now ? Do i have to
pay any penalty for late payment ? If you need any more
information let me know .
As long as you have paid in as much as was your last year's
liability (112% if your adjusted gross income exceeded
$150,000), have paid in 90% of what will be your current
year liability, or owe less than $1,000 on the bottom line
of your 2004 tax return, you will not have to pay estimated
tax. If you are going to owe, you may ask your employer to
withhold additonal amounts from your pay so that you meet
with the minimum requirement/s. Otherwise, use the 1040ES
worksheet to get an idea of what you might owe. When
completing it, remember you'll likely have to pay 15.3% of
your net income in employment tax (less a modest
adjustment).

Here, you'll find Form 1040-ES (PDF), Estimated Tax for
Individuals. Complete the worksheet on page 4, to help you
figure your estimated tax liability.

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

Hope this helps 'n' Good Luck!!=:)

"Jack" - John H. Fisher - (e-mail address removed)
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=:)
 
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H

Herb Smith

Oradba Linux said:
I worked on W2 from the beginning of this year for 4 months
and the next 3 months i have been working as an independent
contractor on 1099 . I have not yet paid taxes for the
income earned during this period. Can i wait till the end of
the year to pay the taxes or pay right now ?
Unless you expect your tax liability to be less than $1000
at the end of the year, you need to make estimated tax
payments during the year. A payment was due on June 15, for
income through May 31. Future due dates are Sept 15 and
January 15, 2005.
Do i have to
pay any penalty for late payment ?
Yes, there will be a moderate late payment penalty - based
on the number of days your payment was late. In addition,
you will have to file form 2210 Schedule AI to calculate the
penalty.
 

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