Self Employed, but not required to pay estimated taxes?
"The annualized method allows you to take a look at each quarter independently and pay the tax in the quarter that you earned it. -- According to Linda Durand, a certified public accountant with Drolet & Associates PLLC in Washington, D.C., from the Bankrate article ""Paying quarterly estimated taxes""  And after paying annualized quarterly estimates, you can still owe up to $1000 at tax time without penalty."
I am not an accountant, but I do run a business in the UK and my understanding is that it's a threshold thing, which I believe is £2,500. Assuming you don't currently have to submit self assessment, and your additional income from all sources other than employment (for which you already pay tax) is less than £2,500, you don't have to declare it. Above this level you have to submit self assessment. More information can be found here I also find that HMRC are quite helpful - give them a call and ask. "There are a couple of things that are missing from your estimate. In addition to your standard deduction, you also have a personal exemption of $4050.  So ""D"" in your calculation should be $6300 + $4050 = $10,350. As a self-employed individual, you need to pay both the employee and employer side of the Social Security and Medicare taxes.  Instead of 6.2% + 1.45%, you need to pay (6.2% + 1.45%) * 2 = 15.3% self-employment tax. In addition, there are some problems with your calculation. Q1i (Quarter 1 estimated income) should be your adjusted annual income divided by 4, not 3 (A/4). Likewise, you should estimate your quarterly tax by estimating your income for the whole year, then dividing by 4.  So Aft (Annual estimated federal tax) should be: Quarterly estimated federal tax would be: Qft = Aft / 4 Annual estimated self-employment tax is: Ase = 15.3% * A with the quarterly self-employment tax being one-fourth of that: Qse = Ase / 4 Self employment tax gets added on to your federal income tax.  So when you send in your quarterly payment using Form 1040-ES, you should send in Qft + Qse. The Form 1040-ES instructions (PDF) comes with the ""2016 Estimated Tax Worksheet"" that walks you through these calculations." You must pay your taxes at the quarterly intervals. For most people the withholding done by their employer satisfies this requirement. However, if your income does not have any withholding (or sufficient), then you must file quarterly estimated tax payments.  Note that if you have a second job that does withhold, then you can adjust your W4 to request further withholding there and possibly reduce the need for estimated payments.  Estimated tax payments also come into play with large investment earnings. The amount that you need to prepay the IRS is impacted by the safe harbor rule, which I am sure others will provide the exact details on. If you have a one-time event, you are allowed to make a single estimated payment for that quarter on Form 1040-ES.  People seem to fear that if they make one such payment they will need to do it forevermore, and that is not true.  The IRS instructions do kind of read that way, but that's because most people who make estimated payment do so because of some repeating circumstance like being self-employed. In addition, you may qualify for one or more waivers on a potential underpayment penalty when you file your Form 1040 even if you don't make an estimated payment, and you may reduce or eliminate any penalty by annualizing your income - which is to say breaking it down by quarter rather than the full year.  Check on the instructions for Form 2210 for more detail, including Schedule AI for annualizing income.  This is some work, but it might be worthwhile depending on your situation. https://www.irs.gov/instructions/i2210/ch02.html You can and are supposed to report self-employment income on Schedule C (or C-EZ if eligible, which a programmer likely is) even when the payer isn't required to give you 1099-MISC (or 1099-K for a payment network now). From there, after deducting permitted expenses, it flows to 1040 (for income tax) and Schedule SE (for self-employment tax). See https://www.irs.gov/individuals/self-employed for some basics and lots of useful links. If this income is large enough your tax on it will be more than $1000, you may need to make quarterly estimated payments (OR if you also have a 'day job' have that employer increase your withholding) to avoid an underpayment penalty. But if this is the first year you have significant self-employment income (or other taxable but unwithheld income like realized capital gains) and your economic/tax situation is otherwise unchanged -- i.e. you have the same (or more) payroll income with the same (or more) withholding -- then there is a 'safe harbor': if your withholding plus estimated payments this year is too low to pay this year's tax but it is enough to pay last year's tax you escape the penalty. (You still need to pay the tax due, of course, so keep the funds available for that.) At the end of the first year when you prepare your return you will see how the numbers work out and can more easily do a good estimate for the following year(s). A single-member LLC or 'S' corp is usually disregarded for tax purposes, although you can elect otherwise, while a (traditional) 'C' corp is more complicated and AIUI out-of-scope for this Stack; see https://www.irs.gov/businesses/small-businesses-self-employed/business-structures for more. I agree with your strategy of using a conservative estimate to overpay taxes and get a refund next year. As a self-employed individual you are responsible for paying self-employment tax (which means paying Social Security and Medicare tax for yourself as both: employee and an employer.) Current Social Security Rate is 6.2% and Medicare is 1.45%, so your Self-employment tax is 15.3% (7.65%X2) Assuming you are single, your effective tax rate will be over 10% (portion of your income under $ 9,075), but less than 15% ($9,075-$36,900), so to adopt a conservative approach, let's use the 15% number.  Given Self-employment and Federal Income tax rate estimates, very conservative approach, your estimated tax can be 30% (Self-employment tax plus income tax) Should you expect much higher compensation, you might move to the 25% tax bracket and adjust this amount to 40%. Payment of taxes for your personal return filed with the IRS always come from your personal account, regardless of how the money was earned. Sales tax would be paid from your business account, so would corporate taxes, if those apply; but if you're talking about your tax payments to the IRS for your personal income that should be paid from your personal account. Also, stating the obvious, if you're paying an accountant to handle things you can always ask them for clarification as well. They will have more precise answers. EDIT Adding on for your last part of the question I missed:  In virtually all cases LLC's are what's called a pass through entity.  For these entities, all income in the eyes of the federal government passes directly through the entity to the owners at the end of each year.  They are then taxed personally on this net income at their individual tax rate, that's the very abridged version at least. The LLC pays no taxes directly to the federal government related to your income. Here's a resource if you'd like to learn more about LLC's: http://www.nolo.com/legal-encyclopedia/llc-basics-30163.html While the US tax code does not directly impose an obligation to pay estimated taxes, it does impose a penalty on individuals for failure to pay enough taxes either through withholding or estimated tax. USMTG Anyone can choose how s/he wants to pay their taxes but they better deal with any consequences of not paying them instead of just complaining about it like most people do. Most people get the hatred towards the IRS but most complaints are misdirected and should be directed towards Congress who creates and messes around with the US Tax Code. Some people actually do not make estimated payments and pay any possible taxes with their returns knowing that there may be underpayment penalty. For those people, the penalty is relatively small compared to what they can do with the cash over a year's time (i.e. investing or paying down debt). It's their choice! "It doesn't generally matter, and I'm not sure if it is in fact in use by the IRS other than for general statistics (like ""this year 20% of MFJ returns were with one spouse being a 'homemaker'""). They may be able to try and match the occupation and the general levels and types of income, but for self-employed there's a more precise and reliable field on Schedule C and for employees they don't really need to do this since everything is reported on W2 anyway. So I don't think they even bother or give a lot of value to such a metric. So yes, I'm joining the non-authoritative ""doesn't matter"" crowd." And if you need to pay business taxes outside of the regular US 1040 form, you can use the IRS' Electronic Federal Tax Payment System (EFTPS). Basically, you enroll your bank accounts, and you can make estimated, penalty, etc. payments. The site can be found here. You may also want to consider Delaware and Nevada as possible corporate homes.  They are common choices for out of state corporations.  You may find that they are better options.   Will earnings prior to forming the LLC have to be claimed as self-employment income? If so, would it be easier to wait until the next calendar year to form the LLC? Earnings after forming the Limited Liability Corporation (LLC) will probably have to be claimed as self-employment income.  See How LLC Members Are Taxed for more discussion.  In particular, read the section on self-employment taxes:   The current rule is that any owner who works in or helps manage the business must pay this tax on his or her distributive share (rightful share of profits). However, owners who are not active in the LLC -- that is, those who have merely invested money but don't provide services or make management decisions for the LLC -- may be exempt from paying self-employment taxes on their share of profits. The regulations in this area are a bit complicated, but if you actively manage or work in your LLC, you can expect to pay self-employment tax on all LLC profits allocated to you. As I read it, you actively work in the LLC, so it is unlikely that you can avoid paying self-employment taxes.  So it shouldn't make any difference when you officially start an LLC.  You'll have to pay self-employment taxes before and after creating the LLC regardless.   If you don't want to pay self-employment taxes, you may want to consider forming a Subchapter C corporation.  They don't have the same tax structure as Subchapter S corporations or LLCs.  You would be paid some kind of wage, salary, or commission and the corporation would pay the employer's side of the payroll taxes.   Note that Subchapter S corporations and LLCs exist because they usually pay less in tax than Subchapter C corporations do.  Even including the self-employment taxes that you owe.   A CPA should be able to guide you in making these decisions and help you with setup.   The one time that I started a corporation, I just paid a few hundred dollars to a service and they filed the paperwork for me.  That included state fees and notice costs.  The CPA probably has a service association already. As 'anonymous' already mentioned, I think the correct answer is to go see an accountant. That said, if you are already have to fill in a tax return anyway (ie, you're already a high rate taxpayer) then I don't see why it should be an issue if you just told HMRC of your additional profit via your tax return. I never was in the situation of being employed with a side business in the UK, only either/or, but my understanding is that registering as self employed is probably more suitable for someone who doesn't PAYE already. I might be wrong on this as I haven't lived in the UK for a couple of years but an accountant would know the answer. Of course in either case, make sure that you keep each an every scrap of paper to do with your side business. They are four quarterly estimated tax payments.   The IRS requires that you pay your taxes throughout the year (withholding in a W-2 job).  You'll need to estimate how much taxes you think you might be owing and then pay roughly 1/4 at each of the 4 deadlines. From the IRS: How To Figure Estimated Tax To figure your estimated tax, you must   figure your expected AGI, taxable   income, taxes, deductions, and credits   for the year. When figuring your 2011 estimated tax,   it may be helpful to use your income,   deductions, and credits for 2010 as a   starting point. Use your 2010 federal   tax return as a guide. You can use   Form 1040-ES to figure your estimated   tax. Nonresident aliens use Form   1040-ES (NR) to figure estimated tax. You must make adjustments both for   changes in your own situation and for   recent changes in the tax law. For   2011, there are several changes in the   law. Some of these changes are   discussed under What's New for 2011   beginning on page 2. For information   about these and other changes in the   law, visit the IRS website at IRS.gov. The instructions for Form 1040-ES   include a worksheet to help you figure   your estimated tax. Keep the worksheet   for your records. You may find some value from hiring a CPA to help you setup your estimated tax payments and amounts. "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." I think we should re-think about paying taxes. If they don't have to pay income tax. It is just one way: to minimize the revenue and maximize their expense. As you know, profit (or loss) = revenue - expense. If they want to reduce their income tax. They have to do this. We can't say anything about the income tax that G.E must pay. They maybe have some rights to encourage their business by being decreased some kinds of taxes. It's very normal. If you have some knowledge about tax and accounting, audits, You will have a clearly point about it! I'm not native speaker. I might not understand your tax rules. But they have all general standards all over the world. If I use wrongly grammar or misunderstanding, pls forgive me. Thank you!