Didn't pay quarterly tax payments, what am I looking at penalty wise?

[mynameisjeff]

H&R royally screwed me 2 years ago so I spent last tax season cleaning up that mess with an actually CPA. I ended up not paying quarterly tax payments since I was behind due to H&R screwing me over, but I did start a new LLC in Feb of 2022 that accounted for all my income in 2022.

The other business which has been around for 3 years hardly made anything, and will not owe anything on that.

Here's where I'm a bit confused, in 2021 I got a full time freelance gig, but never set up an official business for it. I put the income as sole proprietor on my 2021 taxes. In 2022 I started an LLC for the full time freelance gig income. From my understanding, if its technically my first year of the business, I can avoid the penalty. My income has also fluctuated with this freelance gig since i've gotten unpredictable raises 3 times in 2022. In this scenario would I still be able to bypass the penalty since its technically my second year getting income from this freelance gig?

 

[skye1200]

@mynameisjeff You only need to do quarterly taxes if your end of year tax liabikty is going to be greater than $1,000 or 100% of last year's total taxes paid. I wouldn't worry too much about it unless you're making a lot of money with this gig. Next year take this year's 1040 and take your total taxes paid amount, divide by 4 and pay that each quarter.

 

[mynameisjeff]

@skye1200 Yeah thats the thing... I paid 5 figures in taxes in 2021 and 2022 is going to be more than 2021.

Definitely going to set up quarterly with my new CPA this year though, just want to get a gauge on how much the penalty might be and if I can bypass it since its technically a new LLC

 

[family1stdad]

@mynameisjeff No, there is no exemption for the first year in business.

The exemption is for your first year with that amount of income, from any source.

Have you made any estimated tax payments or withholding?

Is it more or less than line 24 of your 2021 1040 tax return?

 

[mynameisjeff]

@family1stdad No estimated tax payments/withholding.

Its more than line 24

 

[family1stdad]

@mynameisjeff I'm not sure I understand. You had 0 estimated payments or withholding at all?

What's on line 24 of your 2040 for 2021?

 

[mynameisjeff]

@family1stdad Yeah I didn't make any estimated payments in 2022 and no withholding, its my own business that gets paid for me providing my services to another company

Line 24 of 2021 was around $18k

 

[family1stdad]

@mynameisjeff You are looking at 300.00 or so in underpayment penalty.

 

[mynameisjeff]

@family1stdad Oh thats not bad at all!

 

[makubexx]

@mynameisjeff The IRS generally considers your business to have been established in the calendar year in which you earned income from it, even if you didn't establish a formal business entity until later. So if you earned income from the freelance gig in 2021, that would be considered the first year of the business, and you would not be subject to penalties for not making quarterly tax payments.

However, you need to be aware that if your income for 2021 was over a certain threshold (which varies depending on your filing status), you could be subject to Self-Employment Tax, in addition to regular income taxes. You should consult a tax professional to make sure you understand all of your tax obligations and how to avoid any potential penalties.

 

[mynameisjeff]

@makubexx Ahhh gotcha that makes sense. Yup definitely subject to SE tax. Get wrecked by it every year lol