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According to Chapter 2 of Publication 505 on the IRS website, I am not required to pay estimated self-employment taxes because I do not plan on having taxes totalling over $1,000 by the end of the year. This simply means that I pay my 2015 taxes in full when it comes time for my annual 1040 at the start of 2016, correct?

Also, what happens if I get to about August and it starts looking like my total taxes will be more than $1,000?

As for some background information; I am self-employed through my own IT business, which is an LLC that is taxed like a sole proprietorship. I need some time to develop some software that my company will use to provide its service, and my only income is very small payments from another business who is allowing me to alpha-test and further develop my product. I'm making enough money to live (which will definitely not require more than $1,000 in taxes), however I have absolutely no idea how long it will take me to finish this product. There's a chance I may finish my product before the end of the year and start making way more money.

  • If you start making more money, just revise your estimate and send in the appropriate amount. This has always been a bit of a problem for me, as my income tends to come in a few large chunks at irregular periods. I just make sure the total meets the threshold (100% of the previous year's tax), and so far have not had a problem – jamesqf Mar 6 '15 at 4:37
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"The annualized method allows you to take a look at each quarter independently and pay the tax in the quarter that you earned it." -- According to Linda Durand, a certified public accountant with Drolet & Associates PLLC in Washington, D.C., from the Bankrate article "Paying quarterly estimated taxes"

And after paying annualized quarterly estimates, you can still owe up to $1000 at tax time without penalty.

  • Linda Durand's assertion is not quite right. If with tax withholding on paychecks etc plus four equal payments of estimated tax, you have paid 100% of last year's tax liability, then you don't owe a penalty for late payment of estimated tax. (110% of last year's tax for high earners). – Dilip Sarwate Jun 7 '15 at 3:22

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