Tax Question

I suppose you mean before the end of the next year because before the end of the current year your income/expenses may not be complete.

It is my understanding that the absolute deadline is October 15th-- the extension of the extension you request on July 15.

 

No - you'll owe taxes on April 15th most likely (depending on the net refund you might get from your other job/income/expenses). Then you'll be asked to pay quarterly taxes next year based on the estimated amount you'll owe. If you don't do that and end up owing taxes in April 2009, you'll pay a penalty. If you know you're not going to owe net taxes in April 2009, you don't have to pay the estimated quarterly taxes.

Does that make any sense?

The exception here is if you were supposed to be paying quarterly taxes this year but didn't (and will owe taxes in April 2008). Then you'll owe some penalty in April.

 

Our tax system is a "pay as you go" system, so if you are self employed right now (for instance, you're getting a 1099 for this contractor job where they do not take out anything for taxes), you must make quarterly payments to the IRS for these 1099 earnings, and if you fail to do so, you'll be subject to penalties and interest.

In general though, you won't be liable for any penalties and interest on your 2007 taxes if you pay in at least 100% of last year's tax liability or 90% of this year's. SO.....if your normal (not on the side) W2 job pays the same or more in wages (and assuming the withholding rate is the same), then you should pay in (from your normal job) at least 100% of last year's tax liability, and therefore, you would not be subject to any penalties or interest. You'd still be liable, of course, for any taxes on the contract (1099) earnings.

Also, you wouldn't be liable for any penalties or interest if you had no taxable earnings for the previous year or (and this could possibly apply) the difference between your normal job's withholding and your total tax liability (including the 1099 earnings) is less than $1,000.

YOU should look at IRS form 2210 to estimate if you'll owe a penalty. You may not have all the numbers yet, but you can estimate. Reading the instructions for the form also forces you to learn an area of the tax code that is now relevant to your individual taxes. Our system can be cryptic, but it isn't impossible to learn the areas relevant to yourself. Don't be afraid to do a search on the IRS website.....you'd be amazed at how much you can learn.

Here are the instructions for form 2210: http://www.irs.gov/instructions/i2210/ch01.html

Here's the form itself:
http://www.irs.gov/pub/irs-pdf/f2210.pdf