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I did a small amount of work as an asset manager by power of attorney this year for which I am getting a fee paid once at the end of this year (in December) and I probably will do no further work of this kind in the future. Do I still need to make an estimated tax payment, or can I just report it as miscellaneous income?

The fee is around $5,000.

  • I assume you're getting a 1099-MISC. See irs.gov/faqs/interest-dividends-other-types-of-income/…. IF you file your return by the end of January, there is no problem no matter what. From Pub 550, "If you file your 2018 Form 1040 or Form 1040A by January 31, 2019, and pay the rest of the tax you owe, you don’t need to make the payment due on January 15, 2019." – topshot Dec 7 '18 at 15:05
  • @topshot That is an incorrect assumption. I am invoicing the company and they are giving me a check. They will not provide me with a 1099-MISC. – Five Bagger Dec 7 '18 at 16:36
  • They should provide you with a 1099. They are paying you more than $600. – mhoran_psprep Dec 7 '18 at 17:02
  • @mhoran_psprep They are not a US company. Also, 1099 are not always required anyway. When I hire a guy to retile my bathroom I don't give him a 1099. – Five Bagger Dec 7 '18 at 17:25
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The one-off type of non-w-2 income can go into miscellaneous income. If this isn't a business and these types of payments are going to be infrequent, Miscellaneous income is the easiest way to do this.

A US company is required to send you early in 2019 a 1099 showing how much they paid you.

The estimated payments are used when you know that you will owe too much. There are safe harbors that can apply, but you get concerned when the amount you owe in April is more than $1,000.

The issue for your case is the fee of $5,000. If you are in the 22% tax bracket that would mean that you owe an additional $1,100 in federal taxes. So if you were getting a small refund or owed a small amount, this extra income could trigger the underpayment penalty.

You have several options:

  • If you are sure that you will make the safe harbors, or that you would have had a sizable refund without this transaction, then waiting until you file your full return should not be a problem.
  • If you might run into an underpayment issue, then either send in an estimated payment (due Jan 15th 2019) or if you can add some additional withholding to your W-2 income via an updated W-4 that will work also. The updated W-4 might be tricky to do before the last paycheck of the year, plus you need to undo the change early next year.
  • Also, if OP is really unsure. OP can always make the estimated payment. If it was unnecessary, it will be refunded to them. Some people get really upset at giving the gov't a 0% interest loan, but in this case at most it will be for 3 months. The piece of mind may be worth it. – R. Hamilton Dec 7 '18 at 15:26
  • I don't understand this answer. Do I need to make the estimated payment or not? I am not asking about whether it is prudent or not. I am asking whether I am required to make the payment by IRS rules, or whether I can file it in April as miscellaneous income. – Five Bagger Dec 7 '18 at 16:39
  • if you file in April, you might owe interest on your tax payment, as it was 'late'. If 0.5% per month don't bother you, you can file in April. – Aganju Dec 7 '18 at 16:45
  • @Five Bagger: Whether it's "miscellaneous income" or not is not the issue. What matters is how much tax you will owe on your total income, and how much of that was pre-paid, either through withholding or estimated tax payments. – jamesqf Dec 7 '18 at 18:10

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