self employment taxes

[bushpilot]

First year in retirement, 56 years of age. I retired from formal employment mid-year, and then ramped up a side gig that I have been doing for a while. I have always paid taxes on the side-gig income, and will continue to do so going forward. However, in the past, it was insignificant, tax-wise, and I took care of it with the withholdings from my formal employment.

The problem is that until now I never had to worry about paying estimated taxes (the amounts were small enough to not matter), but this year I should have started that in the 3rd quarter, or possibly before. Here we are in the 4th quarter, and I wish to do what I can to minimize any problems.

The side-gig income is not that much, maybe will hit $13,000. I did a preliminary calculation, and it looks as though I will owe $1500-2000 or so to the IRS. I have already taken advantage of IRA contributions and whatever I know of to make that might lower that.

I am not concerned about paying the amount owed, but rather how do I go forward between now and the end of the year to ensure that I don't get hit with any tax penalties? Do I simply send in the estimated amount (whole year) in the 4th quarter? Anything else? Or is my concern overblown?

Thanks for any thoughts.

 

[kaneohe]

First check if you meet a safe harbor
1) You have withheld at least 100(110)% of last yrs taxes
2) You have withheld at least 90% of this yrs taxes

If you have, no need for anything more until April.
If you have not, no need for panic but the earlier you pay, the better.
Assume you made the SE income in Q3/Q4 in equal amounts. You then owed
1K for Q3 which is now late. If the interest rate is 5% and it was due 9/15, the interest penalty is 5% on 1K for perhaps 3 mos or about $12 . The sooner you pay the less the penalty.

Read F2210 SchAI and instructions for F2210 for more details.

 

[Rianne]

We always, have been doing this since 2014, pay forward. If you pay too much, you'll get it back next year. I never liked the pay quarterly thing. What gets me is paying the full boat for SS and medicare. We pay both employer and employee sides. When DH finally decides to stop consulting from home, we'll pay less taxes.

 

[bushpilot]

Thank you for the responses. I will be back here if I have any further questions.

It is good to hear thatt he interest/penalties in my case should be minimal, I am still scarred from the last time I made a significant tax error.

 

[Sunset]

OP - You might want to start up a solo 401K , You can also get a roth 401K , both have contribution limits of approx $56,000 in total per year. (if you ever earned that much).

Vanguard has them. https://investor.vanguard.com/small-business-retirement-plans/individual-solo-401k

When earning some extra $$ in retirement, I like putting the $ into the normal separate Roth and the solo 401K Roth.

We have enough in our IRA so no sense putting it in there.

 

[mrfeh]

Thank you for the responses. I will be back here if I have any further questions.

It is good to hear thatt he interest/penalties in my case should be minimal, I am still scarred from the last time I made a significant tax error.

Just make an estimated tax payment online if you're concerned about it. It takes less than 10 minutes.

https://www.irs.gov/payments/direct-pay

 

[bushpilot]

OP - You might want to start up a solo 401K , You can also get a roth 401K , both have contribution limits of approx $56,000 in total per year. (if you ever earned that much).

Vanguard has them. https://investor.vanguard.com/small-business-retirement-plans/individual-solo-401k

When earning some extra $$ in retirement, I like putting the $ into the normal separate Roth and the solo 401K Roth.

We have enough in our IRA so no sense putting it in there.

Interesting, thank you.

 

[Bir48die]

Just make an estimated tax payment online if you're concerned about it. It takes less than 10 minutes.

https://www.irs.gov/payments/direct-pay

+1. Even if you catch up later this year you might have a tiny penalty for not paying quarterly but insignificant. You didn't mention if you have any expenses against your SE income. Either way, agree you just set up quarterlies for next year and you'll be fine.