Should I be paying taxes quarterly?

[fishnugget]

I yet again seek information from the infinite pool of wisdom that is hornfans.

I'm a graduate student. Outside of school I have a regular job where I work 24 hrs / week. Over the summer when I'm not taking classes I'll probably be working 40 hrs / week... I'm married, and my wife has a full time job. Together, these jobs make up a little over 90% of our joint income. I do a little independent contractor work on the side. For the past couple years, we have filed our federal taxes jointly, we each had a w2, and I filed a schedule C for my contractor work. The contractor work is not even close to our main source of income, but i've been reading some stuff online insinuating that i should be paying taxes quarterly. What's the deal here? Any help would be much appreciated.

 

[si se puede]

If I read the 1040 instruction book correctly, I believe you have to pay quarterlies if you file an SE and a C, and if your total tax liability (income tax and self employment tax) for the previous year exceeds your withholding for the previous year.

So if you owed $5,000 in combined income and self-employment taxes for 2008, and you only had $4,000 withheld, then you will need to pay quarterlies for the 2009 tax year, beginning Wednesday.

The quarterlies will be based upon the previous year's tax liability. I don't remember if you have to pay quarterlies based on your entire tax liability (e.g. $1,250 on the $5,000 liability), or just on the amount for which your liability exceeds your withholding (e.g. $250 on the $1,000 excess).

If you don't pay quarterlies, you will be subject to fines and interest.

 

[WhoseHouse]

I have another question about estimated payments- who decides how much they should be? If you are paying them, and the IRS decides they should have been higher (or lower?) do you get fined? How does that work?
What if I paid estimated quarterly taxes in 2008, but know, without a doubt, that my tax liability is going to be much, much lower in 2009?

 

[BevoJoe]

I practice mainly Federal and State corporate/flow through entity taxes so that being said, here's my take on the individual reporting. There are generally two safe-havens. 1) pay in 100% of last years liability or 2) pay in 90% of the tax for the current year.

Usually the Service will send you a notice if you were underpaid and had a Schedule C or Schedule E attached. You will get five shots to make ES payments; 1 each quarter and the extension payment if you need to extend. If you have a refund and apply it to the next year, that will count as a Q1 deposit and usually take you out of the penalty and interest situation.

Good Luck!

If you fail to make es payments and or fall outside the safe havens, then peanlties and interest are assessed.

 

[VYFan]

In reply to:

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[Ignatius]

FWIW, the fines on messing up your quarterly are very, very minimal...I was off by 40% in my first two payments one year and had to make it up on my last two, I think my fine was $29...

 

[kmac30]

i wouldn't worry about it. in 07, i had my salary, wife's salary, and i had profit sharing from a company i was involved with. the profit sharing more than doubled my salary and i didn't want to pay quarterly. i had a $800 fine. I called to ask about it and they ended up removing the fine since it was the first time and i contacted them early.