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Thread: Estimated tax time! First year dancing, questions about estimated taxes

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    Member deni.dee's Avatar
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    Default Estimated tax time! First year dancing, questions about estimated taxes

    Hi all,

    I've been scouring the forum for information on how people get started paying estimated taxes, but haven't been able to find a few of the answers I'm looking for, or ones that speak to my particular situation.

    For context, I just started dancing this past summer, so the Sept 15 estimated tax due date is the first time I'll ever be paying quarterly taxes (or paying taxes as an independent contractor rather than an employee). Before that during this tax year, I worked as an employee, and had federal income, ss, medicare, and state income taxes taken out (and likely more than I owed since in the past with the number of deductions I claimed as a wage employee, I always got too large a refund ~$1k).

    My questions:

    1) Should I even try to pay estimated taxes this year, or just wait to start those if I am still dancing next year when I'll have more a sense of my estimated income? What are the likely costs to me (penalties at annual tax time vs lost interest now) either way?

    2) If I were to pay estimated taxes now, how should I estimate them? Based on my earnings so far and how much I plan to work? Basically I have no idea how to fill out line 1 of 2013 Estimated Tax Worksheet.

    3) I've yet to figure out what my obligations are for California income tax, so if anyone has any good general information on that, I'd love it. Also, a PM on this questions would be greatly appreciated!

    4) When it comes to April, I'll have both taxes as an employee and as an independent contractor to pay, for two different states- any suggestions for how to handle this? Like computer tax programs that can handle both types and aren't too expensive.

    5) The house mom at work gave me the name (apparently "big al", which sounded like a joke to me) of the tax guy strippers use, but I'm stubborn and want to do them myself like I have since I was 18. Any suggestions for websites or books that have helped you learn how to do this right? Like an idiots guide to small business taxes or something?

    Thank you for any and all tips and guidance!

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    God/dess shanna dior's Avatar
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    Default Re: Estimated tax time! First year dancing, questions about estimated taxes

    I get that you're stubborn and want to do your taxes yourself, but this sounds like a perfect time to consult with a local accountant - especially since you have some specific questions with responses that will affect each other. There's no shame in getting help from a professional. You can even have them walk you through filing this first round/year (especially since you have other income that will factor in) so that you're capable of doing it properly yourself later.

    And you don't have to go with Big Al, though he might honestly be your best bet. Any accountant who works with small businesses or independent contractors would be helpful, though they wouldn't be as familiar with the industry as Big Al.

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    Default Re: Estimated tax time! First year dancing, questions about estimated taxes

    Indeed, full feature tax prep programs like Turbo Tax for home and business can handle the combination of 'employee' wage income along with 'business' income ... and can also handle multiple state tax return filings with associated tax credits. But this is a lot of 'new ground' to cover.

    In regard to filing estimated tax vouchers and making estimated tax payments for the balance of 2013, since this is the first year that your dancing 'business' was in operation you will be exempted from underwithholding penalties if you choose not to make the quarterly payments. However you will not be exempted from paying the actual taxes due by next April 15th

    In regard to paycheck estimated tax withholding by your straight job 'employer', the amount withheld was based on a projected effective tax rate that would apply if your straight job paycheck were your only source of income. However, federal and state tax rates are progressive ... meaning that the effective tax rate that will actually apply to your straight job paychecks will in fact go up significantly as a result of your dancing 'business' earnings. As a result, you may be 'surprised' in regard to how much you will actually owe in federal and state tax payments next April 15th if you choose not to make quarterly estimated tax payments in the meantime.

    If you're not sure that you will continue to dance in 2014, there's really no harm done by skipping the quarterly estimated tax payments through next April 15th ... PROVIDED that you have some 30% of the total amount of money you have earned from dancing during 2013 sitting in a bank account to cover the checks that will need to be sent to the IRS and state tax agencies along with your annual tax return filings next April 15th.

    In regard to calculating estimated taxes due on your dancing income, one part is a 'given' ... that you will owe 15.3% of whatever you earned from dancing for federal social security / medicare taxes. From there, depending on the combined amount of your straight job paycheck earnings plus your dancing earnings, you'll owe both federal and state income taxes on top of the social security / medicare taxes. A 10% effective federal income tax rate plus a 5% effective Cal state income tax rate would bring the total effective tax rate on your dancing income to the 30% ballpark.

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    Member deni.dee's Avatar
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    Default Re: Estimated tax time! First year dancing, questions about estimated taxes

    Thanks Shanna Dior and Melonie!

    Shanna you make a good point about familiarity with the industry- especially once I started looking at deductions, it was clear to me that if I really wanted to account for everything I might need some help (though it seems unlikely my expenses will be more than the standard deduction).

    Melonie, thanks for all the tips here (and throughout the Dollar Den)- especially the heads up about how having a new source of income will affect my tax rate! Here's to hoping that I do in fact push myself up a bracket! I ended up finding a way to roughly estimate my taxes owed based on the 1040-es form, and it was much higher than I would have thought. Even though that rough calculation was imperfect, it was a helpful reminder as to how high my taxes could go!

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    Default Re: Estimated tax time! First year dancing, questions about estimated taxes

    I ended up finding a way to roughly estimate my taxes owed based on the 1040-es form, and it was much higher than I would have thought.
    Actually this is very common for Americans who have only worked as / been exposed to W2 'employee' income ... because the fact that the 'employer' is paying a 7.65% social security tax contribution on their behalf is 'invisible'. Where an independent contractor dancer or camgirl is concerned, as a business entity they must pay both the 7.65% employer's contribution plus a 7.65% employee's contribution. Also, for Americans who had been earning something totally $30k or less whose incomes suddenly rise to $50k, the cumulative effect of exemptions and deductions rising a little but progressive federal and especially state income tax rates rising a lot can come as a pretty big shock.

    I applaud you for wanting to push yourself up a tax bracket as well !!! These days an increasing number of Americans are choosing to 'manage' their income level ... to retain eligibility for SNAP benefits, ObamaCare health insurance premium subsidies, etc.

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