Posted on 04/14/2017 2:29:46 PM PDT by SteveH
if i have a year of windfall income (independent consultancy), then do i have to pay next year's 1040es estimated tax? the one year jump is about $125k over what i normally make. this is a large amount of money over 4 payments for income that i know i will not have this year.
tia!
I would pay what you owe me nothing more. There is no penalty as long as you pay in what you owe
You pay estimated taxes for the income for that year. If you don’t expect to have the income you don’t pay the estimated tax.
I think if you had enough withholding tax to pay the amount of you 2015 federal income tax you will not get hit with the form 2210 underpayment penalty, but you will have to pay income tax on all of it.
To avoid penalty the GENERAL rule is that you must pay in the lesser of (i) 100% of prior years tax or (ii) 90% of the current year tax.
I had a similar year (actually a bit more).
I put 30% of every check aside for taxes. It ended up being less than that so I got to pocket the difference.
Why didn’t you save up? You knew the bite was coming.
Our accountant told us to make the 1040ES payments for 2017 at the same rate we normally do.
I don't think this would apply however if you know in advance you're gonna have another extraordinarily high income year.
You should pay a tax for making me feel sick over my salary. :)
Maybe progressive tax rate ain’t so bad... :)
Sorry — misread.
No you don’t. As I said, I just had a year like that.
As a new taxpayer (I suggest S-Corp) you will not be held to estimates or anything like that. DO get an EIN and accountant right now.
Just pay at the end of the year like normal. Also as I said, put money away for taxes.
>>I don’t think this would apply however if you know in advance you’re gonna have another extraordinarily high income year.<<
You can’t “know” any such thing for a normal privately owned company.
The Feds won’t hit you with anything if you made more than the last year, but they MIGHT ask for quarterly filings in the future.
Interestingly, the feds have NOT asked me to start quarterly filings despite a pretty massive income increase (and commensurate tax bill/payment) last year. But I keep a separate account for it anyway.
I think his worry is if it will affect his estimated taxes for next -not what he pays this year. I don’t think he is concern about the tax hit this year.
Also I would describe your situation as “I get back what was rightfully mine all along” rather than “i get to pocket the difference”. The latter makes it sound like it is something good.
The IRS won’t ask you to make estimated payments. That’s on you and your circumstance as to whether you should or not.
I never give the government an interest-free loan, in other words, I don’t get refunds.
>>Also I would describe your situation as “I get back what was rightfully mine all along” rather than “i get to pocket the difference”. The latter makes it sound like it is something good.<<
Thanks — you are of course correct.
I REALLY would like President Trump to get that tax rate fixed! I ended up paying more of that 30% of mine than anyone would have liked.
https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes
I've gotten dinged on it in the past and still do if at tax time I have over a certain amount of income even though I qualify as a farmer and don't have to file and pay estimates if they file and pay by March 1. Also same rule for fishermen but not business entities. I have a good CPA.
The IRS would probably argue if contested that you had the windfall and should have paid it out of that.
Here’s my advice; seek income tax advice someplace besides an internet discussion forum.
Srsly.
Yes, but only if you have additional1099 “windfall” income in 2017. Estimate what it will be for 2017 and make 4 installments. The first is due basically now.
I’m assuming your “normal” income is standard W-2.
Pay what is owed now. If an estimated is required then do the estimation based on what you will make in 2017. But be careful if you underestimate they won’t like it
I’m not sure this is a “windfall”. A lottery win yes but, this is earned income and you might be able to “income average” over the previous years by going back and correcting the past returns to spread this out over multiple years. Hopefully this would reduce your tax bracket and your tax bill for this year.
I am not a tax attorney nor an accountant.
Good advice. If we need tax advice, financial advice, legal advice, among others, it is wise to seek out good professional help........
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.