Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Taxes as a sole proprietor
Old 04-01-2014, 12:23 PM   #1
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,872
Taxes as a sole proprietor

I'm thinking of doing some consulting as a sole proprietor. It will be very simple with very few expenses and I will just bill for at a hourly rate. I will open a separate business bank account for convenience and keep track of income and expenses and generate invoices with Quickbooks.

My question is how should I calculate and pay estimated taxes. I currently use Turbotax Premier to do my taxes as I have a rental property. Can I buy a turbotax product and use it to estimate my current federal and state employment taxes?
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-01-2014, 12:38 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,361
In turbo tax go to the forms mode click on the open forms tab and add the estimated taxes and W-4 worksheet. Make the estimates and it will tell you . (at least for federal).
In this case it will include the self employment tax as well. If you ask it it will even print the vouchers.
meierlde is offline   Reply With Quote
Old 04-01-2014, 12:46 PM   #3
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,872
Quote:
Originally Posted by meierlde View Post
In turbo tax go to the forms mode click on the open forms tab and add the estimated taxes and W-4 worksheet. Make the estimates and it will tell you . (at least for federal).
In this case it will include the self employment tax as well. If you ask it it will even print the vouchers.
So I'd buy the Federal and state CDs...it sounds just as easy to print the forms from the IRS website
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 04-01-2014, 12:50 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 13,151
You said you're already using TurboTax Premier.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 04-01-2014, 01:01 PM   #5
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,872
Quote:
Originally Posted by youbet View Post
You said you're already using TurboTax Premier.
TurboTax Home and Business has the Schedule C......so maybe I just use TurboTax Premier to generate the 1040-ES and them upgrade to Home and Business in 2015
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 04-01-2014, 01:01 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,361
Quote:
Originally Posted by nun View Post
So I'd buy the Federal and state CDs...it sounds just as easy to print the forms from the IRS website
Or just use the prior years safe harbor provision: If your income is under 150k pay 100% of the 2013 tax over pay 110%. Note that the penalty rate is 1.995% of the amount that is under 90% of the amount that should have been paid. (If you use the safe harbor that would be the 2013 taxes as listed above).
meierlde is offline   Reply With Quote
Old 04-01-2014, 01:10 PM   #7
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,872
Quote:
Originally Posted by meierlde View Post
Or just use the prior years safe harbor provision: If your income is under 150k pay 100% of the 2013 tax over pay 110%. Note that the penalty rate is 1.995% of the amount that is under 90% of the amount that should have been paid. (If you use the safe harbor that would be the 2013 taxes as listed above).
I think I'll calculate and pay the federal and state estimated taxes manually for 2014. When 2015 comes I'll use the CD/Download version of Home and Business to do my taxes and generate the 1040-ES.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 04-01-2014, 01:21 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 4,366
As far as what to pay, you can calculate and pay that quarterly. Or, if you know about what your yearly total will be you can do equal quarterly payments, which might simplify the calculations. Turbo Tax Home and Business has the interviews for self employment income.

As far as paying estimated taxes, this is a good official site:

https://www.eftps.gov/eftps/

I make all my estimated tax payments through EFTPS. I can schedule them ahead of time, or pay a little extra at the end of the year if necessary.

And don't forget you can use a Solo 401k. Between the conventional contribution and profit sharing contributions you can make about $30k before you have to pay conventional income taxes. Can't get out of the special SE taxes though.
Animorph is offline   Reply With Quote
Old 04-01-2014, 03:10 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
I do some consulting and have filed Schedule C for the past 30+ years. I have done taxes by hand or used TurboTax Basic or Deluxe.

I think you are making a mountain out of a mole hill.

I don't use a separate checking account. I don't use Quickbooks. I don't have expenses because the clients reimburse me all expenses after I submit receipts and the 1099-MISC they send me do not include the payment for expenses.

I can trivially figure out FICA/medicare taxes in my head and the income is low enough (under $100K) that I have no taxable income after subtracting out deductions, exemptions, allowances, etc.

As noted, figure out the "safe harbors" and use them as needed.

OK there is a complication: I have to file state income taxes if I do onsite consulting in a state with income taxes. I do non-resident returns. It is easier for me to pay the $2 penalty for not making state estimated income tax payments.
LOL! is offline   Reply With Quote
Old 04-01-2014, 03:20 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,264
I agree that there is no need to complicate things with separate bank accounts, Quickbooks, etc. If you are a Quicken user, then add some accounts to Quicken for your business. If you don't use Quicken, then just document you income and expenses on using the spreadsheet of your choice.

If you take advantage of the solo 401k you may not even need to do anything regarding your estimated payments other than self-employment tax since you can manage your business income to be nil.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 04-01-2014, 06:37 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Jan 2007
Posts: 1,240
Set up the sole proprietorship income and expense as categories in Quicken and name the sub-categories the same as the Schedule C. At the end of the year, run a report and set it to "sub-total". Easy peasy.

(Used to run everything in and out of a separate checking account, but that was more hassle than it was worth.)

Kindest regards.
spncity is offline   Reply With Quote
Old 04-01-2014, 07:01 PM   #12
Full time employment: Posting here.
ShortInSeattle's Avatar
 
Join Date: Jan 2012
Posts: 518
I consult and my CPA advised a separate bank account to draw a bright line between personal and business expenses. I like the separation - it keeps things tidy.

For a tad more liability protection, consider opening a single member LLC. The taxation can be done as a sole proprietor, but you get your clients to contract with the LLC, not you as an individual. It's one more line of defense if something goes wrong. You don't want a client coming after your personal assets in the case of a dispute.

SIS
ShortInSeattle is offline   Reply With Quote
Old 04-02-2014, 07:15 AM   #13
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,872
I think I will open a new bank account, just to keep things separate.

I was looking at calculating estimated taxes, but things are not quite as easy as they seemed. I have wages from my old job for the first quarter and also rental income. How do I account for that income and taxes already withheld when doing my estimated SS taxes and income tax for the next 3 quarters.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 04-02-2014, 07:23 AM   #14
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: Conroe, Texas
Posts: 18,645
I have been a SP for many years. Open a separate bank account as a business to keep things separate, It's a good idea and makes life easier.

As far as estimated taxes, I estimate the income quarterly and send in around 15% for three quarters. Then in December, I run a mock tax return and send calculate the total I would owe and send in the adjusted amount in the 4th period. Simple.
aja8888 is offline   Reply With Quote
Old 04-02-2014, 07:35 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
target2019's Avatar
 
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,686
Have been operating as sole proprietor for over 25 years. If you look up comingling with regard to business expenses, there are many good reasons to keep separate accounts.

Here's an example. I have about 5 monthly bills to pay from my checking. BTW, get a personal account to avoid the ridiculous bank fees that may be charged for business checking.

Our personal checking has over 20 monthly transactions, as well as direct deposit of paychecks from non-business work. Data digging is much simpler, and as far as I can tell from reading articles (and IRS), it is a good way to simplify any auditing that might occur.
target2019 is offline   Reply With Quote
Old 04-02-2014, 07:48 AM   #16
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: Conroe, Texas
Posts: 18,645
Quote:
Originally Posted by target2019 View Post
BTW, get a personal account to avoid the ridiculous bank fees that may be charged for business checking.
B of A Small Businees checking is free (but loaded with fees). I have them now, after a change from Chase a few years ago.

Let's face it, all big banks and credit unions are after fees and it's darn near impossible to get a totally free account anymore. Heck, WF business checking even charges you for making DEPOSITS if they are large (over a certain amount)!
aja8888 is offline   Reply With Quote
Old 04-02-2014, 08:18 AM   #17
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,361
Quote:
Originally Posted by nun View Post
I think I will open a new bank account, just to keep things separate.

I was looking at calculating estimated taxes, but things are not quite as easy as they seemed. I have wages from my old job for the first quarter and also rental income. How do I account for that income and taxes already withheld when doing my estimated SS taxes and income tax for the next 3 quarters.
The estimated taxes worksheet in turbo tax does that.
But for this year don't obsess over it use the 110% of 2013 tax safe harbor, and be sure to have money in an account somewhere in case a large payment is due.

Then to guess for 2014 use 2013 turbotax and start a new return entering the amounts you think you will make ensuring that the consulting income gets entered on a 1099, for work use the last paycheck to prepare a w-2.
meierlde is offline   Reply With Quote
Old 04-02-2014, 08:27 AM   #18
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,872
Quote:
Originally Posted by meierlde View Post
The estimated taxes worksheet in turbo tax does that.
But for this year don't obsess over it use the 110% of 2013 tax safe harbor, and be sure to have money in an account somewhere in case a large payment is due.

Then to guess for 2014 use 2013 turbotax and start a new return entering the amounts you think you will make ensuring that the consulting income gets entered on a 1099, for work use the last paycheck to prepare a w-2.
2013 taxes are done as I was an employee all year.

In 2014 my income will be far less than in 2013 so 110% of my 2013 taxes would be way over paying.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 04-02-2014, 11:59 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
I was surprised folks started thinking that someone who is retired and dabbling in consulting on the side was going to have more income from consulting than they did when working a W2 job. I suppose it could happen.

As for accounting for your mixed year, it is really easy if you have TurboTax on your computer. Plug in your income and see what TT says you will owe in taxes. Subtract off the taxes you have already paid (or enter those in TT, too). You will have to guess at whether you will make the same Schedule C income in 3rd and 4th quarters or not. If you overguess, then not a problem since you will repeat the exercise before sending in your 3rd quarter estimated payment after the fact. And you cannot under guess since you don't have to pay taxes in advance: You pay them after you have your 1st, 2nd quarter income known and that's when you figure out your "estimated" taxes to send in.
LOL! is offline   Reply With Quote
Old 04-02-2014, 02:52 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,264
I like what LOL advises. Make a copy of your 2013 tax return and change it as needed to reflect your 2014 numbers - taking our wages as appropriate, adding in Sch C, etc. Take the taxes for 2014, divide by 4 and round up. Reduce the 1Q estimated payment for any withholdings in 2014.

Repeat, with updated info for Q2,Q3 and Q4 and you should be pretty close.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
What Happens When The Sole Owner Of A House With An Upside Down Mortgage Dies? haha FIRE and Money 50 09-21-2009 05:43 PM
Taxes, Taxes. Taxes mickeyd FIRE and Money 1 02-09-2008 12:18 PM
Rivers, kayaking, fishing, nature- my sole criteria oldcrowcall Life after FIRE 5 06-14-2006 03:50 PM

» Quick Links

 
All times are GMT -6. The time now is 02:54 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.