General Question

jengray72's avatar

How much does a self-employed person have to earn before it's a good idea to start paying estimated taxes?

Asked by jengray72 (143points) April 18th, 2011

Is there some kind of official guideline for this?

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11 Answers

Zaku's avatar

I think there is an official guideline, but it’s very low, in my opinion. They’d love you to do it as soon as you’d owe them a buck, I’m sure. However the penalties for waiting till April 15 to pay are small, and waived for the first year it happens. In practice, I have never done it, and was always glad I didn’t when I see how low the penalty was. Well worth it to not have to worry about taxes four times as often!!!

koanhead's avatar

$600 in a given quarter IIRC.

woodcutter's avatar

You might want to see a book keeper as they will know all that ,for the state you’re in. I think one of the rules is cash sales are nobody’s business. Of course that probably depends on the kind of business.

anartist's avatar

Kind of a nasty business if your annual income can fluctuate widely. No fun being high and dry in a bad year when your quarterly payment is due. I have never paid it. DC’s penalty is not particularly low but not particularly high either.

nicobanks's avatar

What a sad question and sad bunch of answers.

My answer is: $1.

Taxes are for all of us. Take some pride in your civic engagement and social responsibility, for chrissake.

woodcutter's avatar

@nicobanks If you want to be a self employed person with all the overhead and responsibilities and risk and really want to pay taxes on one dollar then be my guest. If all a person makes being self employed is one dollar then it’s time to pack it in. It then becomes a hobby. Ever work for yourself? If you did you would know a sole proprietor does not get to keep all the money they make. A lot of it sometimes more than half goes back into the business in the form of expenses.

koanhead's avatar

@nicobanks if you pay taxes on $1 of self-employment the IRS will most likely refund that tax to you and it will cost them (and you) more to process the paperwork than the brief loan of a few cents is worth.
Also, the IRS has a set of rules which specify this stuff. I thought that the number in question was $600 but that’s true only for certain corporations. Also I got the context wrong. Read the linked article, it spells it all out.
Note that your state may have separate reporting requirements.

jengray72's avatar

@nicobanks, I wasn’t questioning paying taxes. I was questioning paying ESTIMATED taxes.

woodcutter's avatar

Generally one should know if their income is skyrocketing in any given quarter. Most start ups aren’t making a taxable profit for the first few years. If you are not really raking it in, you can pretty much assume your tax burden will be nil if you have any expenses at all. Hard to imagine any business without expenses.

augustlan's avatar

A helpful PDF from @koanhead‘s link.

nicobanks's avatar

I’m sorry, I misunderstood and read the question as “how much before I declare ind. income (i.e. file a return).” I think you should declare all your income. If you don’t make much, you’ll probably get a refund so it’s worth your while; but it should be up to the government to decide how to treat your income (or anyway, the forms provided by the government that helps you calculate what you owe/get back) , not the individual. But yeah, to answer your question, there are published guidelines for that, so look to your relevant government body – the info is probably available on their website (I’m in Canada, so that would be the CRA).

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