Author Topic: Confused about the timeline of quarterly taxes.  (Read 365 times)  

Offline psnew

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Confused about the timeline of quarterly taxes.
« on: October 16, 2020, 10:16:38 pm »
Hey, I hope whoever's reading this is doing well during these...interesting times.

I'm confused about how I should pay my taxes in January 2021.

Do you pay taxes for everything you made in the last quarter of 2020, even if what you made in December 2020 won't be in your bank account until late February in 2021.

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    Offline Sleeping Cat Books

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    Re: Confused about the timeline of quarterly taxes.
    « Reply #1 on: October 17, 2020, 06:46:15 am »
    You should probably hire an accountant. Most small businesses use the cash accounting method, which tracks money in and out of your accounts. So if you don't actually *receive* payment in a given quarter, you don't *claim* the income in that quarter.

    But if you don't know what type of accounting you're using, you really need an accountant.

    Offline Ann in Arlington

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    Re: Confused about the timeline of quarterly taxes.
    « Reply #2 on: October 17, 2020, 07:45:24 am »
    Assuming you operate on a calendar year (which you do unless you formally elected some other fiscal year) and are a cash basis tax payer (which, again, you are unless you formally elected to be an accrual based taxpayer) you pay tax based on income actually received, vs income expected.

    So, for example, Amazon pays 2 months in arrears. In November you get September's earnings; in December you get October's earnings. Both of those will be this year's income. November's and December's earnings won't be paid until January and February of next year, so they'll be next years' earnings. Conversely, if you've been doing this a while, earnings from LAST November and December (2019) would have been paid to you in January and February of 2020. So they should also be included on your 2020 tax return.

    I suppose if you're paying quarterly based on what you earned that quarter (rather than based on a calculation adjusted from your 2019 numbers) you'd want to include in the 4th quarter the amounts that hit your account, or were at least available to you, in October, November, and December.

    When deciding what to pay, don't forget to adjust for allowed expenses, and don't forget that you owe income tax and ALSO self-employment tax (social security/medicare) at a rate of around 15%.

    If you need professional help, here are a couple of websites to find a qualified tax professional (who may or may not be an accountant) in your area.

    www.natptax.com
    www.naea.org


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    Offline scottdouglas

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    Re: Confused about the timeline of quarterly taxes.
    « Reply #3 on: October 17, 2020, 08:16:08 am »
    You can download a 1099 at the end of year from Amazon (assuming you are doing taxes as an individual and not a business / corporation). The 1099 will show reported payments (meaning what you have actually been paid out...not what you have earned, but not been paid). So, for example, money earned December 2020 will not be reported on your 2020 taxes.

    You can pay quarterly estimated taxes, but personally, I just set the money aside--you'll have to guess how much you need to set aside, but I'd aim on the high side to be safe.

    Offline psnew

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    Re: Confused about the timeline of quarterly taxes.
    « Reply #4 on: October 17, 2020, 10:24:00 am »
    Thanks for the responses Sleeping Cat and Ann. I really do need to find an accountant.

    I just set the money aside--you'll have to guess how much you need to set aside, but I'd aim on the high side to be safe.

    I don't do this because I've been told if you don't pay quarterly you'll be charged hefty fees.

    Offline scottdouglas

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    Re: Confused about the timeline of quarterly taxes.
    « Reply #5 on: October 17, 2020, 03:53:44 pm »
    Ive never been charged, but maybe I dont make enough?

    Offline Ann in Arlington

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    Re: Confused about the timeline of quarterly taxes.
    « Reply #6 on: Today at 09:57:10 am »

    I don't do this because I've been told if you don't pay quarterly you'll be charged hefty fees.

    If your balance due is more than 10% of your bill OR more than $1000, yes, you will likely owe penalty and interest.

    Keep in mind, if you have a wage job that has withholding, you can always adjust your withholding UP to account for the extra income from your side gig. There's nothing wrong with a balance due, but it should go without saying that you should do your best to legally avoid extra fees. :)
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