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Ask the taxgirl: Estimating My Taxes

January 30, 2011 · 1 comment

Taxpayer asks:

A place paid for me $663 for services performed. They said they will send me a 1099 at the end of the year. How do I figure the taxes to take out?

taxgirl says:

If you are paid without having any taxes withheld (meaning, generally, that you’re going to receive a form 1099) and you think that you are going to owe taxes come tax time, you should consider making estimated payments throughout the year to avoid any penalties. This applies not only to the self-employed or occasional freelancers but also to those taxpayers who may receive income from other sources not subject to withholding; these tend to be landlords, S corporation shareholders, partners in a partnership or taxpayers with significant investments.

If you are filing as an individual taxpayer, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your federal income tax return. If you owed federal income tax last year and expect to owe again this year, you may also have to pay estimated tax for the current year. Some exceptions and special rules apply, so check out federal form 1040-ES (downloads as a pdf) for more information.

There are some differences in payments due, depending on the nature of your payments: if you are self-employed, for example, you’ll need to figure any self-employment tax due, as well as your income tax due.

To make estimated payments, you’ll figure your estimated tax; you can use the worksheet on the federal form 1040-ES to figure your estimated tax. For estimated tax purposes, the year is divided into four payment periods, about once every quarter. Each period has a specific payment due date as determined by IRS (usually April 15, June 15, September 15 and January 15). Watch the dates carefully: if you don’t pay on time, you may be subject to a penalty.

You can also use a commercial software package (like TurboTax or CompleteTax) to figure your estimated tax. There is usually an option at the end of the package to figure any estimated tax due for the coming year and print any payment vouchers. A good tax professional will also figure this for you (for the next year) when they prepare your returns; if you expect your income to be different in the coming year, let your preparer know.

I’m assuming, due to the amount of the payment in your question, that you usually have other income subject to withholding. If you want to avoid making estimated payments altogether, you can also adjust your withholding with your employer using a federal form W-4 (downloads as a pdf). To help you figure out how much additional (if any) to withhold, try the IRS’ withholding calculator.

Don’t forget that, depending on where you live, the income might also be subject to state and local taxes. You might need to make estimated taxes for those, too.

Like any good lawyer, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Have a question? Ask the taxgirl! – On twitter at http://www.twitter.com/taxgirl and on Facebook at http://www.facebook.com/taxgirl

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