Do I have to calculate my est'd tax payments for 2003 based on 2002 income? Or can I calculate (and pay) how much tax I owe on income as I receive it each quarter in 2003? I know it has to be real close (90%?) of what I'll actually owe. I ask because my income and tax in 2002 was probably higher than it will be in 2003. My income is not steady; two big projects in 2002, none yet in 2003.
Do I have to calculate my est'd tax payments for 2003 based on 2002 income? Or can I calculate (and pay) how much tax I owe on income as I receive it each quarter in 2003? I know it has to be real close (90%?) of what I'll actually owe. I ask because my income and tax in 2002 was probably higher than it will be in 2003. My income is not steady; two big projects in 2002, none yet in 2003. No, you don't have to do it that way, it's just the easiest way to do it. If you know your income will be lower you can use one of the other safe harbor calculations. The problem is that the calculations can be difficult to do. The solution is that edcosoft has a program (qitc) that will do it for you. I used it several years ago when I was in the same situation and found it easy and well worth the minimal cost. (I have no affiliation with the company other than satisfied past user.)I assume it can still be found at www.edcosoft.com. Ira
For federal the other safe harbor is that you do not owe over $1,000. The irs website (www.irs.gov) has a good withholding calculator. Every state has its own rules and you would also need meet your states withholding requirements.At least for federal, the underwithholding penalty is daily interest on the amount that is subject to the penalty. So that if you are close but a little under, the penalty is not significant.Debra
vkg: I think this poster pays estimated taxes quarterly, not withholding. She refers to "projects", not employment. A withholding calculator will do her no good. With fluctuating income, particularly less than last year, she should compute her installments on the Annualized Income Method. Ira's right, what she needs is an installment tax calculator which will do that instead of messing around with 1040ES or trying to estimate her annual income, let alone the complications of SE tax, deductions for SE tax, Self Employed's Health Insurance, Saver's credit, pensiion or IRA deposits, etc. The $1,000 safe harbor won't work when you can't estimate your annual income. She's been using the 1/4 of last year's tax safe harbor, but with declining income that's much more than she has to pay. ed
ed,I should have been clearer in my statement.The IRS calculator is called a withholding calculator but does calculate federal taxes including SE tax on non-employee earnings. It also handles IRA contributions but none of the other items that you listed. An installment calculator would be more accurate. Debra
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