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I went to see someone at H&R Block, and they said you are suppose to pay taxes when you get paid, and so for home businesses you are suppose to file quarterly or there could be a penalty. Does anyone know anything about this or do this that could share some info? Does it matter what state you are in?
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I estimate what my taxes will be and pay them quarterly. There are certain dates that they must be paid by or you can be hit with a penalty for underpayment of taxes. I think the voucher form for payment is 1040V, and there are publications and tools on the irs.gov website that will help you figure out the amount to pay. -
I depends on how much you make. For the first several years I was in business, my dh's withholding at his job covered our tax liability for the year.
If you make more or you have no other means of withholding then you should file quarterly. If you get to the end of the year and you owe a substantial amount because of under-withholding, you will pay what you owe plus penalties for under-withholding for each quarter you didn't pay in.
If H & R Block did your taxes, they should be able to give the estimated amount you should pay in quarterly based on last year. State taxes vary by state; I pay in quarterly to state and federal.Comment
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I dont make much, maybe $8,000 a yr. Is that alot? I dont know. How would I know if DH's tax liability covers me? I never did this before, so last yr taxes wouldnt show me anyway.Comment
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If you go to the irs.gov website they have a publication that has worksheets and information on how to estimate your taxes for the year, which might help. Do keep in mind that you are responsible for self-employment taxes, in addition to income taxes, which is what tripped me up my first year. It helps me to keep a running spreadsheet with my expenses and income listed so I can keep track as I go (kind of like doing my taxes all year long, oh joy). This also makes tax time a breeze, as all I do is hand over the spreadsheet to the accountant and he does all the heavy lifting.
Publications 505 and 919 are the two publications that you might want to look at. You can get them on the irs website.Comment
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Estimated taxes
IRS rules say that you must be paying in at least 90% of the federal taxes (social security and income taxes) you owe each quarter of the year or else there is a penalty. Most providers who are married have their spouse withhold enough money to cover them both. If you get refunds each year you don't have to worry about this. To protect yourself, you may want to file the quarterly Form 2040ES to pay in some money towards your taxes. If you are making less than $10,000 a year profit and you aren't married, you won't owe any federal income taxes, but you will owe social security taxes (15% of your profit).
TomComment
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Thanks again Tom for responding. If I am married and make under $10,000, then what? Also what about the self employment tax? When does that get paid? I am ordering some of your books today!! I cant wait to get them!Comment
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Taxes
You and your husband will pay federal income taxes based on how much profit you made from your business plus what he earned. You will be able to reduce this total earning by a standard deduction. In 2009 the standard deduction for a married couple was $11,400. So if your profit was $9,000 and your spouse made $30,000 you total income was $39,000. $39,000-$11,400 = $27,600. You would owe about $2,200 in federal income taxes.
You would also owe social security taxes on your profit or about $1,350 ($9,000 x 15.3%). The total is about $3,500. This is rough because I don't know all your family's situation.
Let's assume the above numbers are your situation. You must pay in the $3,500 throughout the year, either through you husband's withholding through work, or you can file the quarterly Estimated Tax form. Any money that is paid in throughout the year is applied to both your federal income tax and social security tax. You don't write a separate check for social security tax.
TomComment
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That makes sense. thanks for your input. My husband makes about $50,000 a yr, and I only started my buisness in June 2010, so I doubt I will be making much of anything for this yr. I'll be lucky if I hit $4000...
So If I understand this right, we normally would get a refund of about $4000, so if I do not pay quarterly, our refund will be less, and possible none? But then agin, once the business expenses get written off, we will probably still get a small refund? Am I on the right track to understanding this?
Thanks SO much! I really appreciate it!Comment
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On the right track
Since you got a $4,000 refund and the taxes you will owe on your business income will be much lower than that, you can probably still expect to get a refund. If so, you won't have to worry about paying estimated taxes. Since your gross income will be about $4,000 and you will entitled to deduct many expenses, chances are very good that you will still get a refund of at least several thousand dollars.
TomComment
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Tom's on the right path here.
Let me add this....if you're not making alot of profit, the penalties and interest don't amount to much for not filing quarterly, and (at least for me) it's less hassle to just pay the penalty at the end of the year than go through the rigamarole (and remembering) to file and pay quarterly. That's just my .02.
Also, I've said this before, and I'm going to climb back on my soapbox again....QUIT USING H&R BLOCKHEADS. They're hacks, plain and simple. Go to a real professional, not a McDataEntryPerson who last week, was running the cash register at Wal Mart.
H&R Block is OK if you have a simple return (could DIY), but for something as complicated as a home based, self employed business, if you're going to pay for a professional, at least get what you pay for.
Ask around other local business owners in your community as to whom they recommend. I think you'll find that the number that say "H&R" is zilch.Spouse of a daycare provider....which I guess makes me one too!
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So if H & R block is not good to use, then who?? Do you mean a reg accountant? I wouldn't even know how to begin to look for one...
Tom, if you are still around, what happens with the self employment tax? Is that done at the time we file our taxes too? Or does that have to be done quarterly depending on the amount we make?Comment
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Yes he means a regular accountant. You could look in the yellow pages or craigslist. Me personally, I would contact a small business or three or four and explain that you are looking for a good accountant and are wondering if they would recommend anyone.Give a little love to a child, and you get a great deal back.Comment
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Estimated taxes
Self employment tax (also known as social security tax) is calculated at the end of the year when you file Form 1040SE. You don't write a separate check to the social security office. Instead, this tax is added to your federal income tax on Form 1940. If you owe some money at tax time you send in a check to the IRS. The Form 1040SE tells the IRS how much your social security tax is.
If you are paying in estimated taxes quarterly, then part of that payment will be credited to your self-employment tax.
TomComment
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