Estimated Taxes for the Self Employed
Below are questions about estimated taxes for the self employed sole proprietors. Many self employed tax payers are in businesses that have uneven or seasonal income throughout the year. Self employed business owners with home based businesses, for example, can make a lot of money a few months in a row and none the others. If you are in a direct sales or network marketing (MLM) business, this is very common. If you are in a seasonal job business such as lawn care or summer vacations, then your income is also likely to fluctuate over the year. So, how do you figure out estimated taxes when your income is not constant?
Estimated Taxes for the Self Employed with uneven income
Instead of having to pay a large amount of estimated tax one quarter then none the next to account for uneven income, you can use the IRS' Annualize Income Installment method for calculating estimated tax payments. Remember to file the IRS tax form 2210 with your 2008 federal tax return if you use the Annualize Income Installment method to calculate your estimated tax payments.
How to calculate estimated taxes for the self employed?
To calculate estimated tax payments for the self employed, see IRS publication 505. Page 26 of the IRS Publication 505 is the Annualize Income Installment Method worksheet for estimated tax calculation.