Taxes as a sole proprietor

[nun]

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?

 

[meierlde]

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.

 

[nun]

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

 

[youbet]

You said you're already using TurboTax Premier.

 

[nun]

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

 

[meierlde]

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).

 

[nun]

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.

 

[Animorph]

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.

 

[LOL!]

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.

 

[pb4uski]

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.

 

[spncity]

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.

 

[ShortInSeattle]

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

 

[nun]

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.

 

[aja8888]

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.

 

[target2019]

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.

 

[aja8888]

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)!

 

[meierlde]

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.

 

[nun]

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.

 

[LOL!]

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.

 

[pb4uski]

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.

 

[nun]

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.

Yes, that's exactly what I did yesterday.

 

[RockyMtn]

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.

As long as you pay 90% of your actual Federal tax during the year you are not subject to a penalty.