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Quarterly Payment to IRS for independent contractor

Home Personal Finance and Budgeting Quarterly Payment to IRS for independent contractor

  • Avatar ANWCI 
    Participant
    Status: Physician
    Posts: 17
    Joined: 02/25/2018

    Last year’s income comprises of W2 first half of the year, then 1099 on the second half. I also rolled over 3 traditional 401 K accounts to a Roth which makes things a bit more complicated.

    Now I’m trying to figure out the quarterly tax for the first time…

    Is it ok to not estimate the tax payment every quarter and send in maybe 2-3 payments this year instead, as long as you meet at least 90% or even 110% of the year tax by Jan 15 next year?  Will I be penalized or imprisoned (hope not) if I pay the first estimated payment in June instead of this month?

    When I use safe harbor rule to estimate tax for 2019, should I use 2018 income just from W2 and 1099, and exclude the figure from the 3 IRA rollovers?  My income this year will likely fluctuate, plus there will be potentially expenses incurred from moving to another state and buying a house, but it will most likely more than twice from last year’s W2 and 1099.

    I’m new to all of this and to working as an independent contractor.  Appreciate your input!

    #206318 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7509
    Joined: 01/09/2016

    If you are 100% IC, you are technically (per the IRS) required to contribute ~1/4 of the prior year’s tax liability per quarter in the following year. If you make >$150k and are MFJ, you are technically required to contribute 110% of your 2018 tax liability.

    However, your reference to imprisonment, while (I believe) is meant to be lighthearted, has a more sinister connotation. In general, the IRS (the organization, not all individual agents) is quite content for taxpayers to believe (sometimes subconsciously) that they might risk imprisonment or other dire consequences by not following the rules, whether intentionally or not.

    In reality, the worst that will happen is that you will have a minor penalty and interest for late payment. To give you some perspective, I will confess to the forum at large that I rarely pay estimated taxes and I don’t waste a minute thinking about doing so…because I don’t have a minute to spare most days and I don’t care if I pay $500 in penalties next April. I’m certainly not worried about prison. As I’ve written about, we delete penalties for tax clients who calculate <$100 and the IRS doesn’t bat an eye, afaik.

    My point is that many have a serious concern about paying in enough to the IRS and on time. The worst that’s going to happen is that you may owe a few hundred or even a thousand dollars in pen/int as a result. Not chicken feed, I grant you, and more than all the points-chasers are willing to forego, but not enough (impo) to make me sweat. And it shouldn’t have that effect on a physician, either.

     

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #206323 Reply
    Liked by Tim, ANWCI, Dreamgiver
    Avatar southernerdoc 
    Participant
    Status: Physician
    Posts: 41
    Joined: 03/10/2019

    I’m sure the IRS would rather you pay late than not pay at all.  If you’re imprisoned, they suddenly lose revenue.

    #206481 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1750
    Joined: 02/01/2016

    The easiest way to to make your 2019 estimated tax payments from be the lessor of two safe harbors in four equal payments.

    1. 100% (110% if AGI >= 150K) of your 2018 tax liability.
    2. 90% of your 2019 tax liability.
    #206496 Reply
    Liked by Peds, Tim

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