Whoah, that's a lot of self-employment taxes that I'm going to have to pay. Oops.

January 2, 2008 1:50 PM

Self-Employment-Tax-Filter: I didn't expect to have much in the way of income from my consulting business in 2007... setting my deductions to '0' should've taken care of what I expected. However, I ended up making almost a quarter of my income by consulting. I understand you're not an accountant and you're not my accountant, but how can I end up not having to owe a ton of penalties for not having filed self-employment tax?
posted by SpecialK to law & government (7 comments total)

And by 'filed self-employment tax', I mean 'paid estimated self-employment taxes'.
posted by SpecialK at 1:51 PM on January 2, 2008

Step 1 - make a 4th quarter estimated payment by January 15th large enough to be sure to cover a little more than your full tax liability for the year so you would actually get a refund when you finally file.

Based on my own experience (I am not any kind of accountant) the penalty is calculated based on the amount owed vs. the date paid so it will be lower if you pay now instead of April 15th. If most of consulting income was Q4 then you are really in luck since you can file a penalty calculation where you calculate taxes and penalties by quarter so your income tilts to the end of the year then there may not be any penalty (or much less). Also, my impression (and this may not be true) is that you are less likely to be hit by penalty if your return shows a refund due back to you.
posted by metahawk at 2:03 PM on January 2, 2008

I am not super-knowledgeable about this kind of thing, but I think you won't be penalized if your withholding this year is at least 90% of what you paid in taxes last year, so you may not have a problem. See this. I'm in a similar situation and asked my accountant and what she said agreed with the link.
posted by phoenixy at 2:11 PM on January 2, 2008

I think phoenixy is right, and if you look at the example here, your penalty is figured only as 8% interest on the amount you should have paid each quarter to get up to that 90% mark. As laid out in the example, the penalty won't be huge, unless you're making a truly admirable sum of money, in which case you get our envy, not sympathy.
posted by beagle at 2:29 PM on January 2, 2008

Remember, the key thing is that you pay, in whatever fashion (withholding, estimated quarterlies) 90% of what you owed overall the previous year. So you might get a free pass on 2007 and just have this be a lesson for 2008.
posted by Mozzie at 3:32 PM on January 2, 2008

I'm in a similar situation this quarter, and my research so far indicates what phoenixy said - you should be all right if you've paid most of what you paid last year, so you're probably okay unless your situation is really screwy.

Though obviously, I'm not your accountant or any sort of accountant at all, having gotten myself into the same fix.
posted by Stacey at 4:22 PM on January 2, 2008

Kinda in the same boat here, and our accountant said the same things being said here. We just need to make our payment by January 15th to avoid major penalties.
posted by stephthegeek at 6:56 PM on January 2, 2008