Who Does and Does Not Have To Pay Estimated Tax Payments

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.
Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
Who Must Pay Estimated Tax :
If you had a tax liability for 2007, you may have to pay estimated tax for 2008.
General RuleYou must pay estimated tax for 2008 if both of the following apply.
You expect to owe at least $1000 in tax for 2008 after subtracting your withholding and credits.
Who Does Not Have To Pay Estimated Tax:
If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings. Estimated tax not requiredYou do not have to pay estimated tax for 2008 if you meet all three of the following conditions.

You have no tax liability for 2007:
*You were a US citizen or resident for the whole year
*Your 2007 tax year covered a 12 month period
*You had no tax liability for 2007 if your total tax was zero or you did not have to file an income tax return.
Estimated tax requirements are different for farmers and fishermen. Withholding and Estimated Tax, provides more information about these special estimated tax rules.Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.
Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
Who Must Pay Estimated Tax:
*If you had a tax liability for 2007, you may have to pay estimated tax for 2008.
*General RuleYou must pay estimated tax for 2008 if both of the following apply.
*You expect to owe at least $1000 in tax for 2008 after subtracting your withholding and credits.
*You expect your withholding and credits to be less than the smaller of;
90% of the tax to be shown on your 2008 tax return, or
100% of the tax shown on your 2007 tax return. Your 2007 tax return must cover all 12 months.
Sole proprietors, partners, and S corporation shareholders - You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax.
Corporations - You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Use Form 1120-W, Estimated Tax for Corporations (PDF), to figure the estimated tax. You must deposit the payments.
Who Does Not Have To Pay Estimated Tax :
If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings. You do not have to pay estimated tax for 2008 if you meet all three of the following conditions.
You have no tax liability for 2007
You were a US citizen or resident for the whole year
Your 2007 tax year covered a 12 month period
You had no tax liability for 2007 if your total tax was zero or you did not have to file an income tax return.
Estimated tax requirements are different for farmers and fishermen. Publication 505, Tax Withholding and Estimated Tax, provides more information about these special estimated tax rules.

Who Must Pay Estimated Taxes?

Who Must Pay Self-Employment Tax?

You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
*Your net earnings from self-employment (excluding church employee income ) were $400 or more.
*You had church employee income of $108.28 or more.
*Your net earnings from self-employment are based on your earnings subject to SE tax. Most earnings from self-employment are subject to SE tax. Some earnings from employment (certain earnings that are not subject to social security and Medicare taxes) are subject to SE tax.


If you have earnings subject to SE tax, use Schedule SE to figure your net earnings form self-employment . Before you figure your net earnings, you generally need to figure your total earnings subject to SE tax.
Note: The SE tax rules apply no matter how old you are and even if you are already receiving social Security or Medicare.

Are You Self-Employed?
You are self-employed if any of the following apply to you:

*You carry on a trade or business as a sole proprietor or an independent contractor.
*You are a member of a partnership that carries on a trade or business.
*You are otherwise in business for yourself.

Trade or business. A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. The regularity of activities and transactions and the production of income are important elements. You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. You do need, however, to make ongoing efforts to further the interests of your business.Part-time business. You do not have to carry on regular full-time business activities to be self-employed. Having a part-time business in addition to your regular job orbusiness also may be self-employment.
Example. You are employed full time as an engineer at the local plant. You fix televisions and radios during the weekends. You have your own shop, equipment, andtools. You get your customers from advertising and word-of-mouth. You are self-employed as the owner of a part-time repair shop.
Sole proprietor. You are a sole proprietor if you own an unincorporated business by yourself, in most cases. However, if you are the sole member of a domestic limitedliability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation. For more information on this election and the tax treatment of a foreign LLC, see Form 8832, Entity Classification Election.
Independent contractor. People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers whoare in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has theright to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to SE tax.You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if youare given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor and your earnings are generallynot subject to SE tax. However, your earnings as an employee may be subject to SE tax under other rules discussed in this section.For more information on determining whether you are an independent contractor or an employee, refer to the section on Independent Contractors vs. Employees
Pay Self-Employment Tax?You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
*Your net earnings from self-employment (excluding church employee income ) were $400 or more.
*You had church employee income of $108.28 or more.
*Your net earnings from self-employment are based on your earnings subject to SE tax. Most earnings from self-employment are subject to SE tax. Some earnings from employment (certain earnings that are not subject to social security and Medicare taxes) are subject to SE tax.

If you have earnings subject to SE tax, use Schedule SE to figure your net earnings form self-employment . Before you figure your net earnings, you generally need to figure your total earnings subject to SE tax.
Note: The SE tax rules apply no matter how old you are and even if you are already receiving social Security or Medicare.

Are You Self-Employed?

You are self-employed if any of the following apply to you.
You carry on a trade or business as a sole proprietor or an independent contractor.
You are a member of a partnership that carries on a trade or business.
You are otherwise in business for yourself.
There are licensed professionals that can help you prepare your self-employment taxes, if you are having trouble. If you are in question concerning preparing your taxes, don't prepare them yourself, find help before you leave out figures that could cause you to be audited in the future

What Is Self-Employment Tax

What is Self-Employment Tax?

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.
You figure SE tax yourself using Schedule SE (Form 1040). Social security and Medicare taxes of most wage earners are figured by their employers. Also you can deduct half of your SE tax in figuring your adjusted gross income. Wage earners cannot deduct social security and Medicare taxes.
SE tax rate. The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
Maximum earnings subject to SE tax. Only the first $94,200 of your combined wages, tips, and net earnings in 2006 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax.
All your combined wages, tips, and net earnings in 2006 are subject to any combination of the 2.9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax.
Fiscal year filer. If you use a tax year other than the calendar year, you must use the tax rate and maximum earnings limit in effect at the beginning of your tax year. Even if the tax rate or maximum earnings limit changes during your tax year, continue to use the same rate and limit throughout your tax year.
Self-employment tax deduction. You can deduct half of your SE tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your SE tax.


How to Pay Self-Employment Tax:
To pay SE tax, you must have a social security number (SSN) or an individual taxpayer identification number (ITIN). This section explains how to:
1.Obtain an SSN or ITIN
2.Pay your SE tax using estimated tax.

Obtaining a Social Security Number. If you never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. You can get this form at any Social Security office or by calling (800) 772-1213. Download the form from the Social Security Online Web site.
Obtaining an Individual Taxpayer Identification Number. The IRS will issue you an ITIN if you are a nonresident or resident alien and you do not have and are not eligible to get an SSN. To apply for an ITIN , file Form W-7, Application for IRS Individual Taxpayer Identification Number.

cEstimated Taxes
Federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. There are two ways to pay as you go: withholding and estimated taxes. If you are a self-employed individual and do not have income tax withheld, you must make estimated tax payments.


Who Must Pay Self-Employment Tax?What is Self-Employment Tax?
Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.
You figure SE tax yourself using Schedule SE (Form 1040). Social security and Medicare taxes of most wage earners are figured by their employers. Also you can deduct half of your SE tax in figuring your adjusted gross income. Wage earners cannot deduct social security and Medicare taxes.
SE tax rate. The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
Maximum earnings subject to SE tax. Only the first $94,200 of your combined wages, tips, and net earnings in 2006 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax.
All your combined wages, tips, and net earnings in 2006 are subject to any combination of the 2.9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax.
Fiscal year filer. If you use a tax year other than the calendar year, you must use the tax rate and maximum earnings limit in effect at the beginning of your tax year. Even if the tax rate or maximum earnings limit changes during your tax year, continue to use the same rate and limit throughout your tax year.
Self-employment tax deduction. You can deduct half of your SE tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your SE tax.

Who Is Considered Self-Employed

You are condisered self-employed if you have a part-time business, in additions a regular job. The general rule is that an individual is an independent contractor if the person (whom the services are performed) has the right to control or direct only the result of the work, and not what will be done and how it will be done or method of accomplishing the result.

People such as lawyers, contractors, subcontractors, public stenographers, and auctioneers who follow an indeependeant trade, business, or profession in which they offer thier services to the public, are generally not employees. However, whether such people are employees or working as an independent contractor are subject to Self-Employment Tax.

Trade or Business :
A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. The regularity of activities and transactions and the production of income are important elements. You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. You do need, however, to make ongoing efforts to further the interests of your business.
Part-time Business
You do not have to carry on regular full-time business activities to be self-employed. Having a part-time business in addition to your regular job or business also may be self-employment.
Example: You are employed full time as an engineer at the local plant. You fix televisions and radios during the weekends. You have your own shop, equipment, and tools. You get your customers from advertising and word-of-mouth. You are self-employed as the owner of a part-time repair shop.

Tips The IRS Don't Tell You

* You may not know this but when you call the IRS to settle a liability, they will not tell you or speak of an Installment Payment like other tax resolution firms. They will only ask what can you pay? There are tax resolution firms out there that are more familiar with the IRS and what they will or will not do for the IRS. Tax resolution firms know the IRS verbage and how to negotiate with the IRS more so than the individual taxpayer calling for a resolution. There are plans where the taxpayer's liability falls under $25000, and a lower payment can be negotiated. This monthly payment will be lower than going directly through the IRS because the IRS does not inform you of the assessed balance as the starting point of figuring out the payment.

* Did you know that the only way to have a lien lifted is through the following:
-CSED (Collection Statutory Expiration Date) expires
-Liability is paid in full
-Or you can prove you can pay the IRS by the sell of your home: If you have tax liability, you have a lien against you personally. Therefore, when you go to sell your home, a lien subordination has to be requested before the sell of their home. After the fact, your gain on the asset will be paid towards the financial lender first and the remainder towards the government.

E-Filing vs. Paper- Filing

When in doubt, paper filing is always the best way to file your taxes rather than E-filing. The IRS would much rather you E-file because paper filing causes the IRS rep to sit and input data line by line on all tax returns. E-filing auto populates a red letter perfect return that can draw attention to errors. The one advantage of E-filing is that it takes 1-12 days to process vs. three weeks by paper. However what this does is increases your changes of being audited by 4 months . Did you know that the IRS has 14 months (August 15 of the following year) to decide who is selected for audit? So why would you e-file and draw closer attention to you even sooner? I think I will take my chances on getting my money later rather than being audited !

What Does CNC Mean to the IRS?

CNC Status mans that the taxpayer has no MDI (monthly disposable income), no liquid assets to pay liability. During CNC Status, the IRS will hold off payment of taxes. They will also put the taxpayer in an uncollectible status with a closing code that determines when you will be sent back into collections. You can request to be put into CNC for a period of 18-24 months, then th IRS will reassess your financial situation (say for example, you come into employment) to see if your AGI is greater than your closing code amount. When you com into money in some form or fashion, the IRS will unwillingly put you back ino he collecion code so that you can resume paying off your liability.
However, say for instance the IRS can't find the taxpayer? Of so, the taxpayer could be put in to default CNC and be put into collecions anytime. The IRS sends a statement of balance due (CP 89) which requt client to contact the IRS. Basically they want to see if anything changes. Finally a tax lien will be filed in this case.
With CNC there are systemic follow ups based on the following three things:

*Hardships
*Unable to locate
*Unable to contact cases

Especially in cases where there are assets able to full pay at a later date (an action must happen to remove a client from CNC). The IRS request mandatory follow-up only when required or when there is a likelihood that revenue will be collected by taking the requested action.