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Thread: Paying Est. Taxes when your income increases 5x

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    Featured Member paintgoddess's Avatar
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    Default Paying Est. Taxes when your income increases 5x

    Decided to just start a new thread. I will be paying my estimated taxes for three quarters at once. (I'm behind.) However, my estimated taxes for this year are based on only 3 months of dance income last year, making the quarterly amount very low. By the end of 2007, I will have made almost to the dollar 5x more dancing than last year, so my estimated quarterly taxes "should" be higher.

    Question is, should I have been paying more per quarter since I will owe significantly more in the long run, or should I stick to the amount on the quarterly pre-printed stubs from the IRS and deal with paying taxes on the difference later?
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    God/dess Emily's Avatar
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    Default Re: Paying Est. Taxes when your income increases 5x

    you don't have to pay more than you did last year, but you might want to anyway if you think it'll be easier for you...but you still should have been filing quarterly, so there might be a penalty.

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    Default Re: Paying Est. Taxes when your income increases 5x

    ^^^ yes, one of the 'loopholes' in tax law is that you won't be penalized for not withholding more in estimated taxes this year than you were required to last year. However, this is only a temporary reprieve. Come next April 15th, you'll have to pay the total taxes due on the 5x greater earnings. Without much having already been paid against these taxes in previous estimated tax payments, you're going to wind up shelling out a very large sum next April. I have no idea what your 2007 gross dancing earnings are going to total up to, but odds are that you'll wind up having to pay 30-40% of that amount in taxes (i.e. 15% self-employment tax plus another 15% federal income tax plus another 5% in Georgia income tax)

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    Member taxdomme's Avatar
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    Default Re: Paying Est. Taxes when your income increases 5x

    The general rule of thumb is if you think you will owe more than $1k in taxes after subtracting withholding and credits and is the same or less than what you owed last year then you need to pay estimates equal to or more than last year. However, the amount you pay and how you pay per quarter and the number of quarters is up to you. The IRS doesn't care until you submit your tax return. This is one of the few times that the ball is in your court.

    You can find out more here.

    *** Remember that you need to check the tax rules yearly as they change!
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