ed wrote:
- quote -

LOL! And this time, do not listen to Ed. (grin

ChEAr$,
Harlan Lunsford, EA n LA

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Jay wrote:

- quote -

If you get IRS publications for the Self Employed, and
Instructions for Schedule C of 1040, and a calculator for
the 2210 and Sched AI you should be able to do the whole
thing yourself without professional help, and save a BUNCH
of $$$$$.

ed

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dpb wrote:
- quote -

There IS accounting for when the installments were paid (or
not) and if his income started in May an installment MIGHT
be due June 15th, but certainly one will be due on September
15 and another on January 15th, 2007. Unless he uses the
Annualized Income Method he will have owed an installment in
April 2006 also. The instructions for form 1040ES won't
help him calculate the amount of payments, only how to make
a payment and where to send them.

ed
- quote -

Thank You everyone for your help. It seems getting a tax
professional to help me with this would be a wise thing to
do. Thanks.

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"dpb" <dpbozarth[at]swko.net> wrote:

- quote -

This is incorrect. Unlike withholding, the dates of the ES
payments do matter in calculating the penalty. For a quick
verification of this, see the penalty calculation on Form
2210.

To OP: Listen to Ed. He knows this stuff.

--
Phil Marti
Clarksburg, MD

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- quote -

You don't say if you had any income prior to May, but you
have two alternatives to knowing how much to send in in
estimates, and one guess.

1. You can pay 1/4 of your last year's tax each quarter.
This is the easiest but you already have incurred a penalty
for not paying the first one April 15, and the second one,
June 15. You owe 3 quarters by September 15 and another
quarter January 15. If you expect to pay less tax in 2006
than in 2005 this method will be an unnecessary overpayment.
It is REALLY overkilll if you had no taxable income until
May of this year.

2. Estimate your full year's 2006 tax and pay 1/4 of 90% of
it each quarter. Again, you'll owe a penalty for missing
the first two installments and you'll owe three quarterly
payment by September 15. This is a guess anyway as you have
no idea what your final tax for 2006 will be. I doubt if
you can estimate this year's tax.

3. The safest and least expensive way is to calculate the
form 2210 Schedule AI Penalty form in reverse to see at a
minimum what you really need to pay. You'll find you owe
virtually nothing for the first quarter and not much for the
second quarter, so your penalties and how much you have to
prepay will be minimal. It will tell you exactly what you
need to pay by September 15 to avoid any future penalties
and stop interest from running on your past underpayments.

Contrary to the other posts, your tax program from last year
won't do this, and this year's tax program won't be ready
until at least December. Their planning guides are useless
for your purposes. Also the new TT tax estimater wont do
this correctly as it really doesn't annualize. I will cost
you about $30 payable in advance without being able to see
what you're buying. If you try to follow publication 505
you'll find it sorely lacking and its worksheets overly
complicted. It supplies no information regarding the AMT or
Credits.

I suggest you download the only available calculator for
computing quarterly installments on the Annualized Income
Method from www.edcosoft.com/qitc.html. The download to
view the entire program through the first installment is
free and you can Register to open up the following quarters,
if you like the program, for only $18. It is an Excel
spreadsheet (and has been available every year since 1998)
wherein you enter all your ACTUAL income and expense figures
for each tax quarter and it provides the minimum
installments to pay to avoid a penalty. It accomodates
mixing self employment with W-2 wages, installments with
Withholding, automatic computation of SE tax, phaseouts,
AMT, Nanny Tax, Child Tax Credit, etc. etc. It is NOT a
substitute for a tax program, and doesn't ask questions, but
it will compute the full 2006 tax if you can fill in a form
1040 and subtact your business expenses from your gross cash
income.

Ed

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Bill wrote:
- quote -

....
- quote -


The payment for the fourth quarter isn't due until Jan 15
next year, so you actually have until then to make
sufficient payments for this year to avoid penalty. There
is no accounting of when the payments are made, only whether
the minimum total estimated to avoid the penalty based on
your total income is paid.

As others noted, be _sure_ to find out what your state
expects (most are essentially a copy of the Federal way of
collecting, just different amounts) and possibly, even,
depending on where you are located, there could be local
taxes as well.

The other key item is to not overlook the rules in your
locale on sales tax, etc. -- are professional services
considered exempt or not? Some locales do, some don't. For
all these reasons, finding and seeing a tax pro at least for
getting started is not bad advice at all. You can find out
a lot of this information from your State's web page (as
well as the IRS one for federal, of course), but the expert
can steer you through the shoals and ensure you don't
overlook something signficant that could be very expensive
and painful down the road.

Regarding the software, most that I have seen will handle
simple self-employed businesses adequately, but relying on
them as "tax experts" to ensure all is done to the most
advantage and complete is "pound wise, penny foolish"...

Went thru same route a number of years ago--one thing I
would add is to suggest you consider carefully the costs of
doing business including health insurance, etc., (unless you
have coverage through spouse's employment) and really
consider the return you're getting for your time/expertise.

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- quote -

The information on the IRS web site at the first link below
will get you started with quarterly estimated tax payments.
Follow the links on that page to IRS Publication 505 (online
version) and Form 1040-ES (which includes instructions and a
worksheet) for more details. You can download Publication
505 in PDF format from the second link below. The TaxCut
software that you used for your 2005 return has a planning
section that will help you calculate and pay the quarterly
payments for this year. The next quarterly payment is due
September 15, so don't delay.

http://www.irs.gov/taxtopics/tc355.html
http://www.irs.gov/pub/irs-pdf/p505.pdf

- quote -

Any client that paid you $600 or more should send you a form
1099-MISC. You should have good enough records of your
consulting income that you can correctly report all of the
income, whether or not you get 1099s for all of it.

- quote -

You pay this in the form of self-employment tax that will be
added to the income tax on your tax return for the year. The
self-employment tax will also be included in your
calculation of your quarterly estimated tax payments.

- quote -

Yes, the software will take care of all of it, including the
quarterly payments for next year.

Bob Sandler

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Jay wrote:

- quote -

READ IRS Pub 534.

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jay6447[at]hotmail.com (Jay) posted:

- quote -

You should obtain a Form 1040-ES, which will enable you to
calculate the approximate taxes due, and provide "coupons"
for mailing in your periodic payments (they aren't exactly
quarterly). After you've sent the first payment, IRS will
reply with a pre-printed set of coupons for the remainder,
and will automatically send you the pre-printed package in
future years.

- quote -

No. Some may send you a 1099. Some may send you nothing.
Ultimately, you are responsible for keeping records of your
income, and reporting the total, plus calculating the tax.

- quote -

That's to be included in your "periodic payments" -- at the
rate of 15.3% for both (since you are self-employed, you are
responsible for both employer and employee shares of the
payments). When filing your taxes, you will use Schedule C
(or C-EZ, depending on deduction total), and that will
direct you to Schedule SE (for self employment), on which
your tax calculations are made. It would be a good idea to
obtain a copy of these forms for the year 2005 right now, so
you can review the process you will be following for 2006,
in early 2007.

- quote -

I can't speak for Taxcut. However, TaxWise includes
Schedule C (and C-EZ) links, plus Schedule SE, so it's quite
easy to calculate the appropriate entries to transfer to the
1040 (which the program automatically accomplishes).

It might not be a bad idea to get some professional help for
this first year. You'll be starting late, but since your
first income was in May, it's likely there won't be a
penalty if you make sufficient payments before Sep 15. A
pro can help you with this, and also establish the entire
process, making it easier for you to follow on your own, in
future years.

Bill

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Jay wrote:

- quote -

(1) Each quarter you pay in 1/4 of what you expect to owe
for the year. You will need to catch up in the last two
payments. You mail the payments in using Form 1040-ES. The
next two will be due Sept. 15 and Jan 15.

(2) You should receive a 1099 from any customer that pays
you more than $600 for consulting. Probably won't get many I
would guess.

(3) SS and medicare should be part of the ES payments. They
will be figured with your tax return using Form 1040 SE.

(4) The tax software will likely be able to handle the
return but this really misses the point. You need to consult
with someone about how to keep records and to assist you in
calculating your estimated tax payments. A couple of hundred
dollars now will save you a lot of money and headaches in
the future.

Mike Wellman
irsos.com

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Jay wrote:

- quote -


It would pay you to get a tax professional to help you, at
least for one year. They will let you know just how much
you will need to estimate each quarter ( form 1040ES).

The fee that is charged will be at least partically
deductable. The Social Security and medicare tax as well as
the federal income tax is all sent in on the same form.
Don't forget about state and or local income tax. At the
end of the year you may receive a form 1099misc. from
clients but don't count on it. Just keep up with all the
income as well as all of the expenses. Don't forget about
milage.

Missy Doyle

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Until now (past 6 years) I have had a single source of
salaried income, got one W-2 and filed using Taxcut - very
straight forward and simple.

This year, I have been working as a consultant and for 2006
my entire income will be from consulting. In fact, the
actual income started only in May-2006 and I expect to earn
around $40K for the entire year. I file as Married Filing
Jointly + 1 chil.

Questions:
1. I guess, I need to pay some taxes every quarter - what
will this amount be and how exactly do I make this
payment?
2. At the end of the year, am I suppose to receive any W-2
like form from my clients?
3. How and when do I pay social security and medicare taxes?
4. Can I still continue to use a tax software to file my
return - will it take care of these other taxes?

Thanks,
Jay

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