You should pay estimated tax payments each quarter. You are responsible for paying 100 percent of what your liability was the year before in order to avoid a penalty. You may want to consider converting to an S-Corporation. You may want to talk to an accountant about that transition. It can save you thousands of dollars in taxes. Craig W Smalley EA - Admitted to Practice before the Internal Revenue Service
You might want to consider getting assistance from a local Enrolled Agent (EA) or CPA.
Assuming you are organized to pay taxes on your individual tax return (sole proprietor or LLC are two possibilities) here are some basics...
You are required to pay estimated taxes quarterly (Apr 15, Jun 15, Sep 15, Jan 15). You will calculate the amount of estimated taxes you owe by completing a Form 1040-ES. The form will step you through the process to estimate your taxes but you don't file it. You will do the same thing for state income taxes.
As a starting point you will owe 15% of your "profits" as self-employment taxes. Then you'll also pay income taxes on profits minus 50% of self-employment tax.
Make sure you look at minimizing your tax bill by taking advantage of self-employed retirement plans/options.
Self-employment tax is
actually Social Security and Medicare taxes for the self-employed. Those of us
who are self-employed pay both the employee and employer share.
In 2015, that’s 12.4% Social Security and 2.9% Medicare for a total of 15.3%.
This is in addition to federal and state (if applicable) income taxes.
Most self-employed folks who
owe taxes will make quarterly estimated payments for both income and SE taxes.
The SE taxes are reported on Schedule SE when you file your annual tax return.
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