estimated taxes
February 5, 2012 7:18 AM Subscribe
You are not my tax lawyer. My first year freelancing, plus, I got married. Tax help?
All right, so I'm a bit behind the 8-ball when it comes to taxes.
I'm a freelancer, and my spouse is a student. I didn't pay estimated taxes this year. I probably should have. I'm not really sure.
We'd like to file jointly, because, as I understand, that gives the greatest tax benefit. However, spouse thinks that then we'll have to pay through the nose because I haven't paid taxes yet, and she still wants to get something in a tax return and not have it all go to paying off my taxes.
Can I still file some past-due estimated taxes?
And then can we file jointly and, ya know, get credit for the est taxes I paid on my income?
Thanks for the not-my-legal-tax-advice.
All right, so I'm a bit behind the 8-ball when it comes to taxes.
I'm a freelancer, and my spouse is a student. I didn't pay estimated taxes this year. I probably should have. I'm not really sure.
We'd like to file jointly, because, as I understand, that gives the greatest tax benefit. However, spouse thinks that then we'll have to pay through the nose because I haven't paid taxes yet, and she still wants to get something in a tax return and not have it all go to paying off my taxes.
Can I still file some past-due estimated taxes?
And then can we file jointly and, ya know, get credit for the est taxes I paid on my income?
Thanks for the not-my-legal-tax-advice.
This bit me and ended up very painful. I was all 1099 and failed to pay quarterlies and when I went to do my taxes I ended up with an enormous bill that, frankly 3 years later I'm still paying.
My suggestion is to find a very, very, very trustworthy tax person and have them work the numbers for you both jointly and separate. I suspect jointly is the way to go for you both, and her "regular" income may offset what you owe somewhat, but that's just a guess.
The partnership aspect of marriage comes into play here though -- really even if the numbers work out for you to file separately -- she may get money back, but if you have a huge bill and need to pay an installment plan that's still something hanging over both your heads.
I think you can send the IRS money in quarterlies "late" but you're still going to be liable for the penalties of the lateness, and I think waiting to pay it until you file probably won't give you much more of a late penalty.
posted by artlung at 7:33 AM on February 5, 2012
My suggestion is to find a very, very, very trustworthy tax person and have them work the numbers for you both jointly and separate. I suspect jointly is the way to go for you both, and her "regular" income may offset what you owe somewhat, but that's just a guess.
The partnership aspect of marriage comes into play here though -- really even if the numbers work out for you to file separately -- she may get money back, but if you have a huge bill and need to pay an installment plan that's still something hanging over both your heads.
I think you can send the IRS money in quarterlies "late" but you're still going to be liable for the penalties of the lateness, and I think waiting to pay it until you file probably won't give you much more of a late penalty.
posted by artlung at 7:33 AM on February 5, 2012
Response by poster: Thanks for all the info.
Last year my filing included some 1099 stuff. I didn't find it too complicated, so, I'd like to do this myself rather than pay a tax pro.
Especially since my freelancing wasn't super lucrative. My income was around $30k, so, it's not like I'll be paying taxes through the nose.
But, an answer to one of my questions is, I'll pay a penalty for filing my quarterly estimates late.
posted by entropone at 7:40 AM on February 5, 2012
Last year my filing included some 1099 stuff. I didn't find it too complicated, so, I'd like to do this myself rather than pay a tax pro.
Especially since my freelancing wasn't super lucrative. My income was around $30k, so, it's not like I'll be paying taxes through the nose.
But, an answer to one of my questions is, I'll pay a penalty for filing my quarterly estimates late.
posted by entropone at 7:40 AM on February 5, 2012
Generally, filing jointly with your spouse saves taxes when one spouse makes significantly more money than the other. From the perspective of reducing the total amount of tax owed, it may be advantageous to file jointly -- e.g., if you file separately, she might be entitled to $100 back, while you pay $1000, but if you file jointly, the total amount owed might be $800. In the later case, even if you just give her $100, she's where she would've been, and you saved $100.
As has been pointed out, the only way to really be sure is to run it both ways. The other thing to be aware of is that if you file a joint return, both spouses are jointly liable for the amount owed.
It's a little weird to talk about paying estimated tax now. You can just file you return and pay the actual tax now, after all. If you affirmatively calculate your underpayment penalty on a Form 2210, you can reduce the penalty if you pay the bill before April 15, but I don't know how this works if you pay the tax and not the penalty, and let the IRS catch that a penalty is due. Something to talk about with your tax adviser.
posted by planet at 7:43 AM on February 5, 2012
As has been pointed out, the only way to really be sure is to run it both ways. The other thing to be aware of is that if you file a joint return, both spouses are jointly liable for the amount owed.
It's a little weird to talk about paying estimated tax now. You can just file you return and pay the actual tax now, after all. If you affirmatively calculate your underpayment penalty on a Form 2210, you can reduce the penalty if you pay the bill before April 15, but I don't know how this works if you pay the tax and not the penalty, and let the IRS catch that a penalty is due. Something to talk about with your tax adviser.
posted by planet at 7:43 AM on February 5, 2012
So here's an IRS tax table PDF. I look at the entry for $30,000 and I see:
Single person pays: $4,079
Married filing jointly pays: $3,654
Married filing separately: $4,079
Head of household pays: $3,896
The difference between 4079 and 3654 is 425, so to file separately you pay $425 for that privilege all things being equal. I'm presuming I'm reading that right.
Now, as a newer business, you likely have a lot of expenses you need to account for which will offset your tax burden somewhat.
Understanding you want to DIY, but a good CPA can really be a godsend in talking you through possible deductions and offsets to lower your taxes.
posted by artlung at 7:49 AM on February 5, 2012 [1 favorite]
Single person pays: $4,079
Married filing jointly pays: $3,654
Married filing separately: $4,079
Head of household pays: $3,896
The difference between 4079 and 3654 is 425, so to file separately you pay $425 for that privilege all things being equal. I'm presuming I'm reading that right.
Now, as a newer business, you likely have a lot of expenses you need to account for which will offset your tax burden somewhat.
Understanding you want to DIY, but a good CPA can really be a godsend in talking you through possible deductions and offsets to lower your taxes.
posted by artlung at 7:49 AM on February 5, 2012 [1 favorite]
I strongly recommend getting actual professional tax advice to figure this out.
posted by J. Wilson at 8:11 AM on February 5, 2012 [1 favorite]
posted by J. Wilson at 8:11 AM on February 5, 2012 [1 favorite]
Another vote for getting a CPA. I'm a 1099ing independent contractor, and my accountant is worth every penny--he saves me more in legal deductions than his fees, plus I get peace of mind knowing they were done properly AND free financial planning advice during my yearly appointment.
posted by smirkette at 8:55 AM on February 5, 2012
posted by smirkette at 8:55 AM on February 5, 2012
If I recall, the penalty for not filing quarterlies is calculated as interest on the amount you should have paid, counting from each quarter until the date you finally pay, and that it's something like a 4%/year rate. So from artlung's figures, that late fee should be less than $100, and possibly a lot less if you have business expenses to add to your schedule C. (I may be calculating incorrectly? You should double-check this.)
In my experience, the main reason to go to a tax pro, especially since this is your first full year filing as a freelancer, is to get a sense of what you can put down as schedule C business expenses.
Mine might not be as aggressive as she could be, but she seems to know, for example, what percentage of my cell phone bill can safely be considered an expense. If you use part of your home exclusively for work stuff, that's also a big deal. And you don't list your field on your profile, but in the entertainment industry, for example, you can expense all sorts of things like movie tickets, music purchases, museum admittance, internet connection, etc. Depending on your field there's a good chance your internet connection can be considered a business expense, and also any computer stuff you've purchased. Apologies if you already know all this.
posted by nobody at 9:36 AM on February 5, 2012
In my experience, the main reason to go to a tax pro, especially since this is your first full year filing as a freelancer, is to get a sense of what you can put down as schedule C business expenses.
Mine might not be as aggressive as she could be, but she seems to know, for example, what percentage of my cell phone bill can safely be considered an expense. If you use part of your home exclusively for work stuff, that's also a big deal. And you don't list your field on your profile, but in the entertainment industry, for example, you can expense all sorts of things like movie tickets, music purchases, museum admittance, internet connection, etc. Depending on your field there's a good chance your internet connection can be considered a business expense, and also any computer stuff you've purchased. Apologies if you already know all this.
posted by nobody at 9:36 AM on February 5, 2012
I'll be the contrarian voice here. Get Turbotax, run it both ways, and file the way that saves the two of you the most money. I've used it for a similar scenario to yours and been happy.
Do have your documentation in order before doing taxes. That in my opinion is the single biggest barrier to having an easy time of filing (and is much of the benefit of using a tax prep person - they tell you to get your stuff in order). All your major work expenses: mileage, hotels, work computer purchase - document as much as you can for the deductions.
posted by zippy at 9:47 AM on February 5, 2012
Do have your documentation in order before doing taxes. That in my opinion is the single biggest barrier to having an easy time of filing (and is much of the benefit of using a tax prep person - they tell you to get your stuff in order). All your major work expenses: mileage, hotels, work computer purchase - document as much as you can for the deductions.
posted by zippy at 9:47 AM on February 5, 2012
Get TurboTax or whatever and fill in all your info, and then flip the bit from "married filing jointly " to "married filing separately" to see what the difference works out to be. If you keep separate finances from your spouse and she's all miffed that by filing jointly she will be missing out on a refund she might otherwise get, then just write her a check for that amount, since as artlung points out, the check you'll have to be writing to the IRS will be smaller if you file jointly.
The actual penalty for paying your estimated taxes late is not that onerous (compared to the taxes themselves)--1/2% per month late, or something in the neighborhood of a couple hundred bucks in your case. If you're able to get your shit together and just file now, that would be the easiest thing to do. Otherwise, yeah, you can go ahead and send the IRS as much money as you can of what you estimate your total tax bill will be, accompanied by a 4th quarter estimated tax payment voucher (which theoretically should have been sent in January) . That'll stop the interest clock. Of course, if you have enough data estimate what your total tax bill is going to be, you may as well just do the nitty gritty and file your damn taxes.
posted by drlith at 9:48 AM on February 5, 2012
The actual penalty for paying your estimated taxes late is not that onerous (compared to the taxes themselves)--1/2% per month late, or something in the neighborhood of a couple hundred bucks in your case. If you're able to get your shit together and just file now, that would be the easiest thing to do. Otherwise, yeah, you can go ahead and send the IRS as much money as you can of what you estimate your total tax bill will be, accompanied by a 4th quarter estimated tax payment voucher (which theoretically should have been sent in January) . That'll stop the interest clock. Of course, if you have enough data estimate what your total tax bill is going to be, you may as well just do the nitty gritty and file your damn taxes.
posted by drlith at 9:48 AM on February 5, 2012
I know you like doing it yourself. I also liked doing it myself.
Unless you are a CPA, you won't get it right. Sorry. You quite likely will end up paying through the nose because you're not a CPA. They will charge you probably no more than $200. They will save you much more than $200.
Get thee to an accountant. There is a reason we're all telling you to do that.
posted by Ookseer at 9:48 AM on February 5, 2012 [1 favorite]
Unless you are a CPA, you won't get it right. Sorry. You quite likely will end up paying through the nose because you're not a CPA. They will charge you probably no more than $200. They will save you much more than $200.
Get thee to an accountant. There is a reason we're all telling you to do that.
posted by Ookseer at 9:48 AM on February 5, 2012 [1 favorite]
Doing taxes for 1099 work isn't complicated if you know what you're doing (and where all the potential deductions lie).
But since this is your first year freelancing--and you don't even know the basics like whether you're likely to get a refund despite not paying estimated quarterly payments over the year (you're not likely to, no)--you really need either a CPA or a program like Turbo Tax to teach you this stuff this one time.
e.g., Do you know how to depreciate your business assets over time? I didn't when I was a freelancer.
You are going to owe a penalty on paying the estimated payments late. And they're no longer "estimates." They're just your owed taxes now. The reason people are saying you should see an accountant this year is because an accountant will be more experienced than you are finding deductions to offset the taxes you now owe.
I hope you at least break even. It took me years to figure out how to make it through the year without owing, and when I was most successful, I was sending off my quarterlies at a rate of something like %35. (And using a CPA.)
Good luck!
posted by ImproviseOrDie at 12:56 PM on February 5, 2012
But since this is your first year freelancing--and you don't even know the basics like whether you're likely to get a refund despite not paying estimated quarterly payments over the year (you're not likely to, no)--you really need either a CPA or a program like Turbo Tax to teach you this stuff this one time.
e.g., Do you know how to depreciate your business assets over time? I didn't when I was a freelancer.
You are going to owe a penalty on paying the estimated payments late. And they're no longer "estimates." They're just your owed taxes now. The reason people are saying you should see an accountant this year is because an accountant will be more experienced than you are finding deductions to offset the taxes you now owe.
I hope you at least break even. It took me years to figure out how to make it through the year without owing, and when I was most successful, I was sending off my quarterlies at a rate of something like %35. (And using a CPA.)
Good luck!
posted by ImproviseOrDie at 12:56 PM on February 5, 2012
[Accountant Husband posting, IAAA (not a very experienced one), IANYA, TINAA.]
The OP is writing as if the refund many people get after filing their taxes is anything other than money they have already given the IRS, in excess of what they wound up owing. If your wife didn't have any wages withheld during the year for federal withholding, she's not going to get any money back. Estimated taxes are just a freelancer's version of withholding, so it makes no sense to pay estimated taxes now in an effort to reduce the amount of taxes you pay . . . now.
posted by alygator at 3:09 PM on February 5, 2012 [1 favorite]
The OP is writing as if the refund many people get after filing their taxes is anything other than money they have already given the IRS, in excess of what they wound up owing. If your wife didn't have any wages withheld during the year for federal withholding, she's not going to get any money back. Estimated taxes are just a freelancer's version of withholding, so it makes no sense to pay estimated taxes now in an effort to reduce the amount of taxes you pay . . . now.
posted by alygator at 3:09 PM on February 5, 2012 [1 favorite]
This thread is closed to new comments.
posted by fivesavagepalms at 7:29 AM on February 5, 2012 [6 favorites]