Side Job

[emanon1501]

I have a side job as a consulting service. It’s a contract job, so they pay me the full amount with no taxes taken out. How do I pay my taxes? Can Turbo Tax handle this or what should I do? I understand that I have to pay something quarterly or I will get hit with interest. Is this the same for state tax?

[annibe11e]

You may or may not have to pay quarterly. I believe you would have to if you expect to owe $1,000 or more in taxes on top of any withholdings and the tax on the consulting income is at least 10% of your total tax liability. I'm not a tax accountant, though. If it's a substantial amount, you might want to consult with one.

[bjl584]

It depends how much you earn whether or not you will need to pay quarterly. A CPA would be able to tell you this info. It's simple enough to do. You can print the payment vouchers right off the IRS website should you need to make quarterly payments.

[emanon1501]

I will be earning between 1,000 to 3,000 a month.

[feh]

I will be earning between 1,000 to 3,000 a month.

Just increase your withholding on your primary job's paycheck.

[tulog]

You pay estimated taxes for both state and federal.

At the start of each tax year, calculate the amounts to be paid for the year using the worksheets from state and fed.

When you file your return, you include these under the Payments section of the return.

I understand that I have to pay something quarterly or I will get hit with interest.

Not only interest, but 'underpayment of tax' penalty.

[tulog]

Just increase your withholding on your primary job's paycheck.

If he does this method, which I am not sure is a good idea, he is still going to have to complete the estimated tax worksheet to know (and justify in case of an audit), that he has properly computed the estimated tax.

It would be better and safer to file estimated taxes because you can more directly show that you paid the appropriate tax to avoid an underpayment of tax claim.

[debtfreeme]

paying taxes

I have a side consulting job that also does not take out the taxes. I pay quarterly because of the dollar amounts.

I pay 35% to feds and 10% to state. I end up over paying by just a couple hundred or so which I prefer to the not paying enough and getting hit with a tax bill. I always save a little into a savings account incase I need to pay extra but so far, I have not had to.

[MonkeyMama]

I have a side job as a consulting service. It’s a contract job, so they pay me the full amount with no taxes taken out. How do I pay my taxes? Can Turbo Tax handle this or what should I do? I understand that I have to pay something quarterly or I will get hit with interest. Is this the same for state tax?

Yes, it is probably the same for your state.

Actually, it is better to just adjust your salary withholding, because it doesn't really matter *when* you pay it in that way. The government does not know when you had the money withheld. They know if your estimate payment was late. BUT, since you mentioned such large sums, you may also be wary of alerting your employer to your higher taxes (obvious side income). If you are fine with it on the employer side you can just estimate taxes and have flat amounts added to your current Federal and state withholding.

If you go the estimate route, the due dates are April 15th (first quarter), June 15, September 15, January 15th. Pay state estimates by December 31 if you get a state tax deduction (if you itemize).

There is a "safe harbor" rule to deal with unpredictable income. So, all you need to worry about 1st year is that you pay in 110% of last year's tax liability. (It may be 100%, but depends on your income level, so let's just go with 110%). Look at line 61 of your 2012 1040. That was your 2012 tax liability. Multiply that by 110%. Subtract how much you expect to have withheld from your paycheck this year. The difference needs to be paid in (withholding or estimates) to avoid penalty. Of course, you would owe the difference at April 15th, so make sure you set aside what you need. Do the same for state (er, google your state first and make sure they have a safe harbor rule). Turbo Tax will do your safe harbor calculation for the following year. IT's okay to just due a January 15th estimate if you calculate at the end of the year and realize maybe you were $100 or $1,000 short for safe harbor. (Withholding can be a little unpredictable, but try to over-estimate and account for that).

If it were me, I'd just adjust my salary tax withholding to cover "safe harbor" every single year and then save up something like 35% of any side income, to cover taxes. Depending on your income and your state, you may need to save closer to 45%, like debtfreeme mentioned. Could even be more...