Help Needed: Estimated Tax Question

[coolfun]

Hi,

As with many of the people around, my wife got her SSN last year. She has started working as a consultant on 1099 since early Jan 2008. So, there is no issue for the 2007 tax return. However, I have few questions regarding the estimated tax payment this year. Since this is the first time we have come across 1099 based employment, we are very confused about how to pay taxes.

As her employment is based on 1099, the employer is not deducting any taxes. I got the 1040-ES form from IRS website. These are the specific questions:

1. Does the Estimated tax voucher need to be sent in joint names? We file joint returns together but I work on W-2 and she works on 1099.

2. Does 1040-ES form need to be used for all the estimated Federal payments (Federal Tax + SSN Tax + Medicare Tax)? Or there are separate forms for sending the SSN and Medicare taxes?

3. I live in California so I will need to use 540-ES as well for the CA state tax payment, correct?

Thanks a lot for your help.

Regards.

[coolfun]

^^^^

[cooler]

Bump.

I am in the same situation. Any insight from the original owner or others would be appreciated

[newbie2020]

Generally you need not pay the taxes right upfront, However if at the end of the year when you file your taxes, if the IRS determines that you owed lot of taxes and you hadn't make any advance payment it could create lot of issues,

Also imagine getting a tax bill for $$$$$ at the end of the year and you need to shell out right huge amount instead of making a small installments (Similar to the W2 withholdings )

Better choice, Make an advance tax payment, it would reduce the tax burden at the end, You may also get a refund.....

You can make the advance payment by getting an voucher and filling the details...., It need not be in both names, it can be just in your wife's name.

Again it doesn't matter how much you want to pay up...Pay like 3-4K per quarter and you are good...At the end of the year if you owe any additional amount you will pay it else if you made any extra payments you will get refund

All of it is just one single payment, Nothing to separate

[arc]

Any one who owns corp or who has accounting background!!!

[cooler]

Continuation..
My wife is working as an independent contractor(1099-misc) on an EAD. I am also on EAD on W2(full time employment).

We file our taxes jointly and hence instead of making advance payments/estimated tax payments quarterly, cant I just have my company withhold more money from my paycheck every month?

That would make things so much more easier..

[easygoer]

First year generally you do not have to pay advance tax. From second year onwards you have to estimate tax based on previous year and start paying advance tax.

[gcgreen]

to my knowledge, the first year that she started it would be no problem.
but in subsequent years you do need to pay estimated taxes or be subject to underpayment penalty. also, because estimated taxes are pay as you go, you do need to make payments on the payment deadlines.

for some really screwed up reason, the payment deadlines are not precisely three months apart: apr 15, jun 15, sep 15 and jan 15

the amount of estimated tax you need to have paid in order to have paid is calculated based on a worksheet that you can download from the IRS website.

But the general rule of thumb you need to follow is that you should have paid AT LEAST the previous year's taxes by this year including all withholdings and estimated tax payments. For example, if you owed $30000 in federal taxes in 2007, make sure the sum of all estimated taxes and withholdings for 2008 meets or exceeds 30000. I also think there is a rule that if your AGI was greater than 150K in the previous year, you need to pay at least 110% of prior year's tax amount. I am not sure of this one. But generally speaking, I think this rule is called safe harbor rule.

The other rule you can adopt is to ensure that you pay at least 90% tax that you will owe for 2008 by end of 2008. In other words, if you end up owing 40000 this year, make sure you have paid at least 36000 by end of this year.

You can find more info at:
http://www.fairmark.com/estimate/whomust.htm
http://finance.yahoo.com/taxes/artic...s#howcalculate

I hope this information was helpful. Bear in mind, I am no expert on this, and all this info is just by reading various online sources, IRS docs etc.

Originally Posted by cooler

Continuation..
My wife is working as an independent contractor(1099-misc) on an EAD. I am also on EAD on W2(full time employment).

We file our taxes jointly and hence instead of making advance payments/estimated tax payments quarterly, cant I just have my company withhold more money from my paycheck every month?

That would make things so much more easier..

[cooler]

As we file our taxes jointly and hence instead of making advance payments/estimated tax payments quarterly, cant I just have my employer(w2 based) withhold more money from my paycheck every month?

Would this extra payment through this channel suffice for the purposes of estimated payments?

[gcgreen]

I do not know authoritatively if this is so. But logically speaking, I see no reason why not. Asking a CPA is probably the best way to go if you really want to do it only the withholding route. Many times a CPA will give you this advice free of cost. Also you can ask the tax guy at bankrate.com or some other online source where some tax expert answers questions.

The way I see it, as far as IRS is concerned, by the deadline dates, they expect to receive the right amounts of money. Withholding is one way, estimated taxes is another.

Also, one thing I forgot to mention in my previous post, make sure you also pay for her social security, medicare and state tax.

Social security is 12.X % and medicare is 1.5% (please verify from authoritative source), so setting aside 14% for this is a safe thing to do.
CA state tax is 9.3 % (again please verify because this varies based on your combined income)

Originally Posted by cooler

As we file our taxes jointly and hence instead of making advance payments/estimated tax payments quarterly, cant I just have my employer(w2 based) withhold more money from my paycheck every month?

Would this extra payment through this channel suffice for the purposes of estimated payments?

[s_r_e_e]

in thw worst case, if you owe lot of taxes to IRS at the end of the year and no money was paid, you can still pay it along with the next year tax filing . Your payment will include some % penalty.
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