My wife is a self-employed realtor. Last year she made a good amount of money, which created hellacious estimated quarterly tax payments for 2007. For 2006, I had already calculated our tax burden and had filled out the necessary forms, but because I was uncertain about what to do about the estimated SE tax payments for 2007, I hired an accountant to file my 2006 taxes, and as part of the deal, he would advise us on what to do next. The accountant told us to give him call when my wife earned some money. Needless to say, my wife earned a small commission ($1500) in Sept.07, but did not earn anymore commissions until Dec. 07. We called for advice in December and our accountant said that we would have to pay about a $50 penalty, but we could pay our SE payments the same time as we pay our taxes on April 15.My question is,huh? Is that it? Am I missing something? Why did I hire this accountant? Any comments from anyone familiar with the annualized method of calculating one's self-employment taxes would be greatly appreciated.
The first commission probably wasn't sufficient to create a need for an estimated tax payment. You did have two choices in December, make an estimated tax payment or pay the penalty and pay the balance with your tax return. There does seem to be a lack of communication with your tax preparer. You didn't get the answer on how much of an estimated tax payment to make in January.Form 2210 is used to handle underpayment penalty on inconsistent income. If it isn't filed, the income is assumed to be evenly earned for each quarter. Filing it will minimize the underpayment penalty. Since it is now late Feb and you will probably be filing soon, it is unlikely to be worth the effort to make an estimated tax payment. You also need to determine how much of the commissions are taxable income. It is possible that she has expenses to write off against the income. Self-employment taxes apply only to the taxable income. Debra
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