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  • Need help estimating 1099 taxes

    Hi,

    I have read several items online and get quite different results when using different calculators, and I think I've confused myself to death.

    In the past several years myself and my husband have both had relatively steady W2 incomes (approx 315k total between us, between 3 W2 jobs), and I was doing a bit of 1099 (96k last year) as well.

    This year I estimate we will total have 225k W2 income.
    My 1099 will increase to probably about 160k.

    I have maxed out my 401k and 457b at my employed job already, but will be leaving and not able to contribute to this any further. I have always put 20% of 1099 income into SEP and will continue.

    However I am very concerned about a large tax burden. I don't want to do quarterly payments- the way we've handled this in the past was extra deductions from our employed paychecks, and I wish to continue this, but I know it will need to increase.

    How do I figure out how much to increase it by? This is where I get stumped. I can't seem to figure out what my additional tax burden will be.

    Thank you for any advice.

    YIFP

  • #2
    - shouldnt be doing SEP
    - need to start bdrIRA
    - IRS W4 calc. hit your safe harbor amount.

    Comment


    • #3
      Safe harbor will avoid penalties. Either pay via w2 or quarterly

      Comment


      • #4
        Meet your safe harbor and then use a tax program like H&R Block or Turbo Tax to put in your numbers to give you a general idea on total tax burden so you won't get any surprises.

        Comment


        • #5
          When you have finished your 2020 tax returns (don’t know about your state), multiply the total taxes (line 24, pg2, 1040) by 110% and make sure you’re on track to withhold at least this much from your paychecks. This DOES NOT mean you won’t owe more taxes next 4/15, just that you won’t owe penalty and interest. States vary, so I cannot address that issue.

          I’d really recommend developing a relationship with a CPA experienced in working with physicians in your situation. That does not mean a CPA who does all of your colleagues’ taxes but, preferably, one who is very comfortable working with financially astute/educated doctors, such as those who populate this forum. As much 1099 income as you expect (and I realize others will disagree), I cannot imagine the optimal outcome with DIY.
          Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

          Comment


          • #6
            Originally posted by jfoxcpacfp View Post
            When you have finished your 2020 tax returns (don’t know about your state), multiply the total taxes (line 24, pg2, 1040) by 110% and make sure you’re on track to withhold at least this much from your paychecks. This DOES NOT mean you won’t owe more taxes next 4/15, just that you won’t owe penalty and interest. States vary, so I cannot address that issue.

            I’d really recommend developing a relationship with a CPA experienced in working with physicians in your situation. That does not mean a CPA who does all of your colleagues’ taxes but, preferably, one who is very comfortable working with financially astute/educated doctors, such as those who populate this forum. As much 1099 income as you expect (and I realize others will disagree), I cannot imagine the optimal outcome with DIY.
            can you expound on this? besides avoiding penalties through estimated taxes, and solo 401k employee/employer contributions, what other pitfalls are there? Do you recommend a CPA for anyone with significant 1099 income?

            Comment


            • #7
              Originally posted by saul View Post

              can you expound on this? besides avoiding penalties through estimated taxes, and solo 401k employee/employer contributions, what other pitfalls are there? Do you recommend a CPA for anyone with significant 1099 income?
              i can’t go through all of the pitfalls (sorry, but that is such an open-ended question). This is a question to ask someone with whom you have a relationship.

              Yes, there are 2 on this list I would recommend. There is 1 in particular I would steer clear of. Others, I’m just not sure about, haven’t met and only 2 on that list participate in any way on the forum, so hard to vet that way.

              If you are asking in general if someone with significant 1099 income s/use a CPA, I would say 99.9% of the time, a resounding yes.
              Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

              Comment


              • #8
                Originally posted by saul View Post

                can you expound on this? besides avoiding penalties through estimated taxes, and solo 401k employee/employer contributions, what other pitfalls are there? Do you recommend a CPA for anyone with significant 1099 income?
                A tax professional will know how to do your taxes correctly. It may actually end up being cheaper in the long run to have someone do it right the first time than to pay someone to go back and fix everything when/if you get audited. From a time standpoint, it would probably be a better use of your time to let a tax professional take care of everything and you can pick up an extra shift or two and probably come out ahead in the long run.

                Comment


                • #9
                  Thanks to everyone who has replied.
                  We do have a CPA who does our taxes; I'll check with him as well just wanted to see if I could get a general idea.
                  I think the idea about multiplying by 110% is great but I am concerned because our situation is changing this year (quitting employed job, shifting to more 1099) so wasn't sure if just extrapolating that would be adequate.

                  I appreciate everyone!

                  Comment


                  • #10
                    Originally posted by YIFP View Post
                    Thanks to everyone who has replied.
                    We do have a CPA who does our taxes; I'll check with him as well just wanted to see if I could get a general idea.
                    I think the idea about multiplying by 110% is great but I am concerned because our situation is changing this year (quitting employed job, shifting to more 1099) so wasn't sure if just extrapolating that would be adequate.

                    I appreciate everyone!
                    Your safe harbor is set in stone but you need to be cognizant of what your actual tax owed will be so you won't be surprised come April.

                    Comment

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