08 Feb Freelance income and estimated taxes
Q. I am wondering what the effects of the recently enacted tax reform will be for those who file estimated taxes? I work as an independent contractor so I have 1099 income, plus I get income from investment gains. I never know ahead of time how much income I will have in any given year, so I estimate.
— Trying to plan
A. The tax plan means lots has changed, and it can be hard to keep up with.
But a couple of things stayed the same.
For starters, the rules for making estimated payments to the state of New Jersey have not changed, said Cynthia Fusillo, a certified public accountant with Lassus Wherley in New Providence.
“You can either pay in 80 percent of your estimated current year liability, or 100 percent of your prior liability by Jan. 15 of the following year, in order to avoid an underpayment penalty,” Fusillo said. “The latter method is commonly referred to as the safe harbor method.”
For federal purposes, the rules have not changed either under the new tax law, but the percentages to pay are slightly different than those for New Jersey — as they have been for quite some time.
In general you will pay in either 90 percent of your estimated current year tax liability or 100 percent of your prior year liability, Fusillo said.
“Further, the safe harbor rules state that if you are considered a higher income taxpayer —adjusted gross income of more than $150,000 or $75,000 if married filing separately — then the percentage you must cover under this method is 110 percent of your prior year liability,” she said.
She said practitioners generally advise clients to pay according to the method that results in the lower quarterly payment, with any additional amount owed being paid by April 15 when you actually file your return.
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This post was first published in February 2018.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.