Self Employed Quarterly Taxes

Going from an employee to a boss sounds great, and doing something you love everyday is inspirational. However, as a self-employed individual it is important to know about paying quarterly income taxes.

When to pay Quarterly Taxes

For individuals in a sole proprietorship, a partnership, or an S-corp. if the estimated taxes owed at the end of the year are over $1,000, then it is important to pay quarterly taxes.

Quarterly taxes, are taxes paid at the end of every business quarter during the fiscal year. A fiscal year is a year as established for taxing and accounting purposes.

Businesses whose fiscal year starts on January 1st the due dates for quarterly tax payments are: April 17th, June 15th, September 17th and January 15th of the following year. If the tax return is filed before January 31st the fourth estimated tax payment is not due if the tax is paid in full when the return is filed. If the businesses fiscal year does not start on January 1st then the estimated taxes are paid on different dates all depending on when the fiscal year starts.

If a tax is owed and is not paid in full when the tax return is filed there could be a penalty applied to the account.

How much to Pay

As an employee, taxes are taken out of your income automatically, the amount paid to the government in taxes is about 19% of your income. This is broken down into three taxes, federal income taxes, social security, and medicare.

There are different ways to calculate how much to pay in estimated quarterly taxes. It is possible to take the estimated the tax owed by taking the AGI, figuring out the taxable income amount, take off deductions and credits to find out about how much will be owed. However, it is easier to figure out how much to pay off last year’s tax return and estimating off that based on the amount owed last year.

How to Pay

The IRS has many options to help everyone pay their taxes on time, in a way comfortable for the individual. Some different ways to pay the IRS estimated/quarterly taxes are:

• Pay Online
• Direct Pay
• Pay by Card
• Electronic Fund Withdrawal
• Online Payment Agreement
• Pay by Cash
• Pay by Check or Money Order

There are stipulations on some of the different ways to pay the IRS. Paying by card there is a small processing fee. Paying by cash is only possible under special circumstances and the individual must make a request. Paying by check or money order must be sent to the correct address which changes depending on where the individual lives.

To learn more on how to pay the IRS the link below shows all the possible ways.

https://www.irs.gov/pub/irs-pdf/f1040es.pdf


Self-Employed Quarterly Taxes

Going from an employee to your own boss sounds great and doing something you love everyday is inspirational. However, as a self-employed individual it is important to know that you must pay quarterly taxes.

For individuals in a sole proprietorship, a partnership, or an S-corp. if the estimated tax owed at the end of the year is over 1000 it is important to pay quarterly taxes.

When to pay Quarterly Taxes

Quarterly taxes, as the name implies, are paid at the end of every business quarter during the fiscal year. A fiscal year is a year as established for taxing and accounting purposes.

Businesses whose fiscal year starts on January 1st the due dates for quarterly tax payments are: April 17th, June 15th, September 17th and January 15th of the following year. If the tax return is filed before January 31st the fourth estimated tax payment is not due if the tax is paid in full when the return is filed.

If the businesses fiscal year does not start on January 1st and starts on a different date, such as July 1st then the estimated taxes are paid on different dates. If a tax is owed and is not paid in full when the tax return is filed there could be a penalty applied to the account.

How much to Pay

As an employee, taxes are taken out of your income automatically and the business matches the amount you pay. The employee has 6.2% withheld from there income and then the employer matches that making it 12.4% of an individual’s income goes to the government. When an individual is self-employed, they must cover the whole 12.4% by themselves because they are the employee and the employer.

There are different ways to calculate how much to pay in estimated quarterly taxes. It is possible to take the estimated the tax owed by taking the AGI, figuring out the taxable income amount, take off deductions and credits to find out about how much will be owed. However it is easier to figure out how much to pay off last year’s tax return and estimating off that.

How to Pay

The IRS has many options to help everyone be able to pay their taxes on time, in the most comfortable way for the individual. The different ways to pay the IRS estimated/quarterly taxes are:

• Pay Online
• Direct Pay
• Pay by Card
• Electronic Fund Withdrawal
• Online Payment Agreement
• Pay by Cash
• Pay by Check or Money Order

There are stipulations on some of the different ways to pay the IRS. Paying by card there is a small processing fee. Paying by cash is only possible under special circumstances and the individual must make a request. Paying by check or money order must be sent to the correct address depending on where the individual lives. To learn more on how to pay the IRS the link below shows all the possible ways.

https://www.irs.gov/pub/irs-pdf/f1040es.pdf


Rental Income and Expenses

Graduated college and getting ready to buy a house, then what? Is the plan to live there forever? What happens when it is time to move? For some the answer is yes they plan to live in their first house for the rest of their lives. For others they plan to just sell the house and move to the next when it is time. Then there are the few that decide to keep the old house and make it a rental for some extra income.

Now this house could be a vacation home that they visit one week out of every year, or a condominium they rent out to college students. Either way reporting the income from the rental home is a step in filing the yearly tax return.

Where to Report Rental Income

If renting out the property us just for some extra money, then the income and expenses are reported on the Schedule E, Supplemental Income and Loss. However, if this is how an individual is making a living, by renting out properties, then the income goes on the Schedule C, Profit or Loss from Business (Sole Proprietorship).

After knowing where to report the income and expenses of the rental property, it is important, to understand what would counts as income and expenses.

Income and Expenses

Incomes for the rental property are; amounts paid to cancel the lease, advanced rent payments, and security deposits. These all go into the income made from the rental property.

Some of the rental expenses are; depreciation, repair costs, and operating expenses. Other expenses include such as mortgage interest, real estate taxes, insurance, but there are limitations if the owner uses the house for part of the year, such as a vacation house.

It is only possible to deduct expenses for when the rental property was available to the general population. Therefore, family and friends that can go stay for free or little charge do not count as days the rental property was on the market.

Example:

Family and friends stay for 37 days in the rental home, and the home was then up for rent to the public the other 328 days in the year, then it is possible to deduct 90% of the expenses. Because 90% or the days it was available to the public.

Renting properties gives another person a place to sleep and grow. This also gives extra money the homeowner to help them in next chapter of their life. When renting the property just remember that the income and expenses need to go on the yearly tax return, and the rest will be easy.


How to Fill out Schedule C

To help fill out line 12 on the 1040 it was important to know how to fill out the Schedule C for a business.

General Info

The top section of the Schedule C is the general information about the business. This section includes; principal or professional business and the business code going with the principal business, for tax preparation services it is Code 541213. To find the business code look at the chart on page 17 of the schedule C instructions. This code helps tell the IRS a bit more about the business; such as what expenses are “normal” to deduct.

Other information needed is the Businesses Name, EIN, and Business Address. The EIN is the Employer ID Number given to a company from the IRS. In addition, it is important to know whether the business is on a Cash or Accrual accounting basis. Then at the bottom of the section are four questions with yes or no check boxes to answer about the business.

Part 1: Income

Line 1 for the Income Section is for gross receipts and sales; any money the business made through providing the service or product. Line 2 goes through returns and allowances for the business; items returned and a refund given for the product.
Line 4: Cost of Goods Sold is broken down in Part 3 of the schedule C. Other income is reported on Line 6 and includes things like federal and state gasoline tax credit or refund.
Lines 3, 5 and 7 are just adding or subtracting different line numbers together to get totals. Gross Sales subtract Returns and Allowances subtract Cost of Goods Sold and add Other Income is the breakdown of the Income Section.

Part 2: Expenses

Seperate this section into two mini sections. The first section is composed of lines 8 through 27b. It breaks down all of the expenses deductible for businesses. Some of the main categories include; Advertising, Office Supplies, Taxes, Travel and Wages. Line 9, Car and Truck Expense, is broken down farther in Part 4 of the Schedule. Line 27, Other Expenses, is also broken down in Section 5 of the Schedule C even more.

The second mini-section starts with total expenses on line 28; this is where all of the amounts in the above lines are added together. The other major line in this part is Line 30: Expenses for business use of home.

To calculate the business home deduction using the simplified method, take the area of the home office and multiply it by the home office deduction rate. In 2017, the rate was 5 dollars a square foot. A room 11’ by 12’ is used for a home office; this is a 121 square foot room. The deduction would be $605 using the simplified method.

Another way to calculate the home office deduction is through the expenses spent on the home office. For this method, Form 8829 is required. On this form, it will break down the total size of the home, the size of the home office and then all of the expenses paid towards it. Then taking the percentage of the home used for work and multiply that by the total expenses paid. To get a longer example look at the example if Part 4: Information on Your Vehicle.

Part 3: Cost of Goods Sold

Part 3 is a helpful section to help calculate the cost of goods sold for Line 4 of the Schedule C. Calculating cost of goods sold is a systematic process going through: inventory at the beginning of the year, inventory purchases, labor costs, and the inventory at the end of the year.

Part 4: Information on Your Vehicle

When a vehicle is used for business, not just commuting to work and home, then the vehicle becomes deductible. Use Part 4 of the Schedule C if the taxpayer is claiming car or truck expenses on line 9 of expense section.

Example: Susan drives her car for everything, getting to and from work, going to business meetings and appointments, driving her kids to sports practice and going to the store. During the last year, she drove 2,000 miles in commuting to work, 3,000 miles to appointments, and 4,000 miles of other miles. During the year, she also paid 100 for licensing, 300 in oil, 1,000 to repairs and 50 in tolls. How much does she report in Car or Truck Expenses?

Mileage

If Susan uses mileage to calculate her deduction, she will use Part 4 of the Schedule C. To calculate the expense she would take her the miles she used for work, being 3,000. Commuting miles are not included in the total business miles.

After, if Susan takes the 3,000 miles and multiples it by the mileage rate she will have her deductable amount. The business mileage rate for 2017 was .535. Taking the miles and the mileage rate, Susan’s Car and Truck Expense would come out to be 3,000*.535 = $1,605

Expenses

If Susan uses the expenses paid to calculate her car deduction then Form 4562 will be filled out instead of Part 4 of the Schedule C. First Step would be to find the business use of the car. With 3,000 miles for business and 6,000 total other miles (2,000 commuting + 4,000 other), the business use would be 33%. This means 33% of the expenses would be deductible. Total expenses on the car were $1,450 (1000 repairs, 300 oil, 100 licensing, and 50 tolls). This makes Susan’s Car and Truck Expense $478.50.

For Susan it would be smarter to take the deduction based off mileage. Leaving Part 4 of the Schedule C waiting to be filled out.

Part 5: Other Expenses

If there are expenses that don’t fall into one of the categories shown on lines 8-26 the expenses can go on line 27 Other Expenses. Each extra/miscellaneous expense should be reported here. To report the expenses start with the name of the expense, then the expense amount next to it. Total the line items and add the amount to line 27a.


You say Business – IRS disagrees, Hobby

Start a business in something you love?  You are making little money but that does not matter – you are enjoying the tax deduction advantages.  You can turn a seemingly expensive activity to a mini-business with a bunch of tax write-offs.  What a deal! But then the shock comes when the IRS says, “No!” you have a hobby and your tax deductions are taken away.   Continue reading…


Understand a Profit & Loss Statement

Most people that work for a business may never think about the reports that aid owners and managers for making decision. One of those reports is the profit & loss statement. The profit & loss statement shows all of the company’s income from sales, services and any other sources. It also shows the companies expenses. These are good things to record to see if the company is making a profit or a loss. Continue reading…


IRS Scammer Caught Red Handed

For about a year, I received numerous calls from people that received a strange call from the IRS. The IRS scammer would demand money to pay back tax debt. If the person didn’t pay, the scammer would threaten to call the police and jail time.  I thought it would be interesting to call a scammer and record the conversation.

Continue reading…