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I live in NYC and make $90k as a salaried employee, but I also have a freelance LLC (with separate business account) for freelance projects. I've set up the LLC as a disregarded entity (Schedule C on my taxes).

As I started the LLC mid-year 2015, I didn't have to do estimated Taxes, just then -- but now I do, and I want to do things correctly.

My understanding is that when calculating estimated tax, you have to consider all your income (estimated for the year), and then deduct for federal & state (and city for me, too).

If I have to consider all income, that means I have to start at the $90k and add the freelance income on it too, to get the % to hold back each quarter, right?

Or is there an easier way to do it that I'm missing? All the information I've read treat freelance income as the sole source, which is why I'm a little confused.

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You are on the right track, for tax purposes its all ordinary income at the end of 2016. If the free lance "employer" will withhold fed,state and local tax, then that takes care of your estimated tax. If they can't or won't, you will need to make those estimates and make payments quarterly for the fed and state tax at your projected tax liability. Or, you can bump up withholding by your day job employer and cover your expected tax liability at year end without making estimated tax payments.

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I assume your employer does standard withholding? Then what you need to do is figure what bracket that puts you in after you've done all your normal deductions. Let's say it's 25%. Then multiply your freelance income after business expenses, and that's your estimated tax, approximately. (Unless the income causes you to jump a bracket.)

To that you have to add approximately 12-13% Social Security/Medicare for income between the $90K and $118,500. Filling out Form 1040SSE will give you a better estimate.

But there is a "safe harbor" provision, in that if what you pay in estimated tax (and withholding) this year is at least as much as you owed last year, there's no penalty. I've always done mine this way, dividing last year's tax by 4, since my income is quite variable, and I've never been able to make sense of the worksheets on the 1040-ES.

  • For small amounts--a few hundred -- I usually ignore the estimated tax issue and just deal with it on next year's forms. It's close enough that the difference is less than normal imperfections in withholding. – keshlam Apr 7 '16 at 2:59

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