Another great article from our trusty accountant.
If you have started to receive freelance or independent contractor income in 2008, please read on this is very important information for you to understand. At first it seems great all the income without taxes so what is the catch? You must pay into the IRS your own estimated income and self employment taxes on a quarterly schedule in advance of April 15, 2009. The first installment should have been paid on April 15, 2008 covering self employment income minus expenses for January- March 2008 then the next is due June 16, 2008 , September 15, 2008 and finally the last installment on January 15, 2009.
What happens if you haven’t paid? Ignorance of the law will not stop the penalties from accruing since January 31, 2008, however if you kept your day job there may be a way to reduce those charges. First, ask your employer to withhold extra income tax out of your normal paycheck for the remaining pay periods of the 2008 calendar year. You accomplish this task through completing a new W-4 form for your current employer stating the extra income tax you would like withheld to cover your self-employment earnings.
How do you figure the possible extra income tax needed to be withheld? Use this form (IRS TAX FORM) or you can make an appointment with your tax preparer to help you.
If you did not keep the day job, then definitely have a CPA figure your estimated tax and pay it in ASAP. Plus file your tax return early in 2009, if you meet the General Rule below, because the penalties continue until all 2008 taxes are paid in full.
Text Direct from IRS web site www.irs.gov retrieved 10/27/2008
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, and 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.
Who Must Pay Estimated Tax
If you had a tax liability for 2007, you may have to pay estimated tax for 2008.
General Rule
You must pay estimated tax for 2008 if both of the following apply.
Download this file and import these dates into your Google or iCal
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