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Estimated Quarterly Taxes

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  • Estimated Quarterly Taxes

    Hey all,

    Hoping to ask a brief question on estimated quarterly taxes. Say you made $5000 in 1099 income the first quarter of the year, but don't expect that to be repeat the rest of the year. For the first quarter, is it necessary to make all estimated tax payments for that $5000, or can it be made throughout the year, or even at the end of the year will normal taxes if when combine with normal W2 withholding <$1000 is due? Thanks for your time.

  • #2
    You can pay those taxes through your withholding. If you get to the end of the year and suspect you are going to underpay by quite a bit you can even have a very large withholding in December since the IRS treats all taxes paid on your W2 as withheld evenly throughout the year.

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    • #3
      • You can spread your estimated liability on the $5k income through the year
      • You can pay all in 1st estimate if you annualize (NOT recommended in this case : ) )
      • You can increase withholding
      • You can wait until 4/15/21 to pay bal-due if you will have already withheld at least 110% of p.y. taxes on W2 pay.
      Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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      • #4
        Thanks for your time!

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        • #5
          Originally posted by jfoxcpacfp View Post
          • You can spread your estimated liability on the $5k income through the year
          • You can pay all in 1st estimate if you annualize (NOT recommended in this case : ) )
          • You can increase withholding
          • You can wait until 4/15/21 to pay bal-due if you will have already withheld at least 110% of p.y. taxes on W2 pay.
          Just to clarify, why wouldn't paying the entire estimate now not be recommended here?

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          • #6
            Free loan to the IRS.

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            • #7
              Originally posted by bullsdoc View Post

              Just to clarify, why wouldn't paying the entire estimate now not be recommended here?
              Then you'd have to fill out this form: Form 2210, and it's a pain in the ******************. Besides, why do something the hard way when you can do it the easy way?

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              • #8
                Originally posted by CordMcNally View Post

                Then you'd have to fill out this form: Form 2210, and it's a pain in the ******************. Besides, why do something the hard way when you can do it the easy way?
                Thanks. So just to be clear, I can put this off until April 2021 and pay them then without penalty as long as there has already been 110% W2 withholding as mentioned by jfoxcpacfp? This is the line from Nerdwallet's section that concerned me, hoping that I'm interpreting incorrectly. Seems you can be penalized even if there is a refund due? Copied from their site below:

                What If I blow it off and just deal with it in April instead?

                The IRS will charge penalties if you didn’t pay enough tax throughout the year. The IRS can charge you a penalty for late or inadequate payments even if you’re due a refund when you file your tax return.

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                • #9
                  Originally posted by bullsdoc View Post

                  Thanks. So just to be clear, I can put this off until April 2021 and pay them then without penalty as long as there has already been 110% W2 withholding as mentioned by jfoxcpacfp? This is the line from Nerdwallet's section that concerned me, hoping that I'm interpreting incorrectly. Seems you can be penalized even if there is a refund due? Copied from their site below:

                  What If I blow it off and just deal with it in April instead?

                  The IRS will charge penalties if you didn’t pay enough tax throughout the year. The IRS can charge you a penalty for late or inadequate payments even if you’re due a refund when you file your tax return.
                  The bolded likely refers to somebody that should have been making quarterly estimated payments (which is someone whose majority of income comes from 1099 and not W2, which isn't you). They can't not pay their estimated taxes and then try to make a big payment at the end of the year. In that scenario where they make a big payment at the end of the year or at tax time, even if they overpaid and are due a refund, the IRS would still penalize them.

                  As an employee, all of your withholdings on your W2 are considered spread evenly throughout the year. For example, say you owe $30,000 in federal taxes for the year. Normally, people would try to take the same out ($2500) every month. However, you could technically have nothing taken out for the first 6 months of the year and then have $5,000 taken out every month for the last 6 months (or any other combination) and it would still be considered spread out evenly over the year. That isn't the case if you strictly have 1099 income.

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                  • #10
                    Originally posted by bullsdoc View Post

                    Thanks. So just to be clear, I can put this off until April 2021 and pay them then without penalty as long as there has already been 110% W2 withholding as mentioned by jfoxcpacfp? This is the line from Nerdwallet's section that concerned me, hoping that I'm interpreting incorrectly. Seems you can be penalized even if there is a refund due? Copied from their site below:

                    What If I blow it off and just deal with it in April instead?

                    The IRS will charge penalties if you didn’t pay enough tax throughout the year. The IRS can charge you a penalty for late or inadequate payments even if you’re due a refund when you file your tax return.
                    Absolutely, you can owe a penalty even if you will get a refund. Let’s look at an example:
                    • You made $800k/yr W2 in 2019
                    • You change to 1099 on 1/1/20 because you can make $300k/quarter and see the USA!
                    • After your spouse informs you on 3/1 that you need to arrange for your 4 young children to accompany you on your exciting travels if you do not wind up your mid-life crisis soon, you realize this may end up costing you more than you had realized. And there is plenty of excitement at home.
                      • The hospital administrator - who even manages not to say “I told you so” - welcomes you back with open arms on 4/1. You have been missed and are treated to a free lunch in the lounge. (Ok, nothing new here, but you’re having a 2nd honeymoon and looking at life with a new pair of rose-colored glasses.)
                    • You finish out the rest of 2020 at your old salary Of $200k/qu - which now seems like a pretty good deal, after all.
                    • But...you don’t want to pay estimated taxes of $25k/quarter and decide to pay all $100k on 1/15/21.
                    • When you prepare your 2020 return, you are owed a $20k refund - wonder of wonders!
                    • But you owe a hefty penalty (no, I’m not calculating it - look it up)
                    • Just as many don’t like to “give the IRS a free loan”, the feeling is mutual at the IRS (tttt, not sure there is much “feeling” involved but you get the picture).
                    • So...you are getting a nice refund but you owe a nice penalty, which reduces that refund.
                    Make sense?
                    Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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