In this lesson, we're going to learn how to set up QuickBooks self employed to calculate our estimated quarterly taxes. Quarterly taxes are calculated mainly based on three main items, your self employment income and deductions, a projection of your self employment income, enter and deductions over the current calendar period. So what that means is, if we are only in the first quarter, and the first quarter being January, February and March, QuickBooks self employed uses the income that you made in those three months to project what you will likely make throughout the year. So keep in mind, that's the reason why every quarter your estimate your taxes are probably going to be different because every quarter As a self employed person, you know that your income may not be the same, it may not be consistent, you could have made say $50,000 in quarter one and only made $20,000 in quarter two.

So that's going to change the overall projection of your yearly income. The third item that is used to calculate your estimated taxes is your tax bracket and the information that you include in your tax profile. So everybody's tax bracket is different and it all depends upon different moving factors that and that that's what determines what your overall tax bracket is. And at the end of each quarter, the software automatically calculates how much estimated taxes you are required to pay based on the year to date, projection or rather than yesterday's income, which is then projected out to the remaining time Year. Okay, so we're going to begin by setting up your tax profile, it's very important that you set up your tax profile as precisely as possible so that the system calculates the most accurate quarterly tax payments. There are two ways that you can access your tax profile.

The first one is from the homepage. So while you're on the homepage, you can click on this gear icon, and under taxes, you can click on tax profile. So that's one way of accessing your tax profile. The other way is simply by clicking on the taxes tab to the left hand side, and then making sure that you are on quarterly taxes. And then, on the right hand corner, you can see where it says tax profile, you can click on this edit button and it takes you to the exact same screen where you can then start inputting your tax profile information. The first item you want to fill out When you are completing your tax profile, is your marital status.

Are you single? Are you married? Or are you a qualified widower, we're going to start out using the single using the single aspect. So let's say you're single, you're going to click on single. And then head of household Head of Household means that you a single person, either male or female, and you have a child by qualified dependent that lives with you, that you take care of. For, I would say, I don't want to get too technical.

So let's just keep it really simple. So let's say you're a single, you're single parents, you have a child and you're not married, then you would be considered to be the head of household. Now, I advise you that before you fill this part out, you might want to speak to your accountant or speak to your CPA or your tax preparer to find out what you are because Believe it or not as simple as this sound, sometimes people get a little bit confused when it comes to determining whether or not they can actually pick Head of Household as an option. So if you're not sure, ultimately, I think you should get some advice from your accountant or your CPA or your tax preparer. So let's let's make the assumption that you are single and don't have any children. So then you will click on single and no, which means you're not head of household.

So in that case, you have zero dependents, you have no children. And now let's assume that you are head of household and therefore you click Yes. Okay, so you click Yes, your head of household. Now the question is number of dependents. So let's assume you have two children. So you're a single mother or father.

You have you all the head of household because you have two dependent children. So in this box, you're going to type in the number two okay. So once you do that, the next item is your annual w two income. So even if you are self employed person, whether you are a contractor or you have your own business on the side, you may also have a w w two income. Let's say you work part time for somebody who treats you as an employee and therefore gives you a paycheck and withhold taxes every paycheck, then you you want to include that information here. On the other hand, your self employment income might just be part time, and you actually have a full time job.

So let's, let's assume under this scenario that you have that your business is full time for you, but you also maintain a part time job just to make ends meet. So the question is, what is your annual w two income? So as a part timer, we're going to assume that you're making, let's just say $25,000 a year. See, I can $25 a year. So the question now is your federal withholding You can have the system, estimate how much the system thinks that your employer is going to withhold from your W two income. And they're going to get this information based upon your complete tax profile.

So if you if you choose estimate for me, then the system is going to estimate how much the withholding is going to be. And therefore you don't have to do anything further with this. If you decide you want to estimate it yourself, you want to click on this radio button, and it says use my estimate. So in order to estimate yourself, you can you can do a couple of things. You can either ask your employer to give you a breakdown of your withholdings or you can actually actually look at your pay stub to make that determination. But you're going to have to project that throughout the entire year.

So in other words, let's say you're doing this in July, if you use your own estimate, you're going to have To figure out how much taxes your employer is going to withhold for the entire year, all right, up until up until December. So in my opinion, I think it would be a better idea to just let the system do the work. The whole idea is for you to simplify your life, and not make things complicated. So in that case, let the system do the work for you. So click on estimate for me, and let it be and just let it go. And the final item is standard versus itemized deductions.

Now, based on what you got on your tax profile, as it stands, your standard deduction because your head of household is going to be 9350. Now, should you choose itemized deduction? That's only a question that you and your accountants can answer. If the best way to handle this, I would say would be to look at your life. His tax return and see what was used or the standard or the itemized if it was itemized. And you anticipate that most things are going to be the same during this tax year, in other words, not much change.

So let's say you own a house, your mortgage interest is not going to change much, you're going to also have to pay property taxes to your home, that's not going to change. You have charitable contributions that you contributed last year, and you figure you're going to contribute probably about the same thing this year, that doesn't change. So if you have items that you don't think are going to change, and you use itemized deductions for your last tax return, then it would be a good idea just to click on this radio button, itemized deductions, and just put the exact same exact same amount that you use last year or if you have a different number in mind, and you're quite certain that that's what it's going to be, then you can actually include that number otherwise Just stick with the standard deduction. So once you've done all that, you're going to save when you go to save everything, but before we save everything, I would like to show you how to set up a profile if you are married, because a little bit different, so we're going to click on married.

So if you're married the next question is, are you filing jointly with your husband? Or are you filing separately from your husband? If you file a tax return as married filing separately, then you're going to click on No. Once you click on No, then you are going to go ahead and clear this box here where it says two dependents with a staff member. It's also clear this where it says 25,000 because we're starting over from everything is back to its normal, its normal state. So now if you Married as filing status status.

And when you click on your filing, you're not filing jointly. And this is what you're going to wind up with is almost identical to the single the single way of completing your tax profile. So filing jointly, the answer is no number of dependents, I don't know who's going to be claiming them if you're married and filing separately, maybe your husband and maybe you claiming them or you could claim one, he could claim one, however you decide to do it. So let's say you have two children. And you claim one he claims on that I'm just going to put one in here as a dependent. And then the same situation with your annual w two income is the same thing as the new single.

Do you have income coming from an employer? If you do, you're going to include the amounts here 25,000. And once again, like I said earlier estimate for me is the best way to go about it. deductions you're going to determine from your last year's tax return whether or not you're going to use standard or itemized deduction. Okay. That's it.

You want to file jointly with your husband. So in that case, your mouse status is going to stay as married. And then filing jointly, you're going to click Yes. So when you click Yes, now, not only are you going to include just your tax Pro, your tax profile information, they're also going to include your husband or your wife, because both of your income together is going to determine how much estimated taxes you're going to wind up paying through the year. So let's go back here and remove this 25,000 months again, let's remove this one dependence. And let's see, I'm going to remove Okay, back and stay there.

Okay, so now you're going to follow join me if you click Yes. Okay. Number of dependents. Let's say you have three children. You can only you can only choose and you can only use your children as dependents, you can't use dogs and cats and turtles as dependents. Just FYI.

YI, some people try to use their dogs as dependents, and that's not allowed. So anyway, you're going to have three dependents. Now you have your annual w two income. And let's say you are the person who owns this business, and you don't have any w two income. So because you have no w two income, this is going to remain as zero for you. And because there is because this is zero, of course, you This doesn't really, this part's not going to come into play because your your income is zero.

Now you do have a spouse. So let's say your spouse's name is Chad. And Chad has a job. He's not self employed, he has a job. So then you're going to include your husband's name here, Chad, and of course the last name. And then the question now is what is your spouse's annual w two income?

So you have to find out how much does my husband or my wife make every year? So let's say Chad makes $150,000 a year Now the question is once again, estimate for me. We'll use my estimates. So let's click on you can you can use your own estimate, which I said earlier, it's not advisable. Let the software do the heavy lifting. You're going to click on estimate for me.

Now, as you can see, in this particular situation, the estimate was $20,000. So they're estimating that $20,740 is going to be deducted from Chad, paycheck in 2017. Okay, so Okay, that's fine. So, once again, we're going to go down to the deductions whether you're going to use standard or itemized that's going to depend upon what you use last year. So once you have completed this section, you can then go ahead and Save it. Oh, so one of the things I say that so this $20,740 is going to be taken into consideration when your estimated taxes are being calculated and projected throughout the year.

Okay, so let's go ahead and save. So that is how you set up your tax profile. Once you have completed setting up your tax profile, the system is now ready to start calculating your estimated taxes based on your self employment income, and any w two income included in the tax profile. If all of your income comes from self employment work, and you do not have any w two income from an employer, nor are you filing jointly and therefore, you don't have any spouse's income in spite of your tax profile. whatever amount the system calculates at the end of each quarter is the amount you are required to remit or to send to the IRS. So I'm looking at 2016 to the estimated taxes.

So based on 2000 in 2016, net income, the amount that should have been paid by August 18 of 2016 should have been $1,000 and 16. And quarter two should have been $775 quarter 323 29. So by the end of the year, you should have paid $5,163 in estimated taxes. So, if everything is set up properly, once you file your tax return, you shouldn't owe any any you should not owe any money because you Make your payments throughout the year. Now, if you do have w two income, or you have a spouse who has w two income, the amount you have to pay each quarter is not quite as straightforward. And I do have to say that I really don't like the fact that Intuit didn't take the time to break down the amount one has to pay in estimated taxes.

If w two income is part of the equation, I mean, they made it a little bit confusing and let me show you why. Okay, so we're looking at this screen right now and we can see this he's cool. So one as an example. So in cool two one, this single person who has no w two income has to pay $1,016 based upon his or her or based upon her based upon her self employment income for the first quarter. Okay, so let's click on this one. icon for the tax profile.

So this $1,016 it's based on this tax profile a single person with no children. Okay, so now let's change that to married. So you're married, you're filing jointly, and your husband Chad has income of $50,000 a year. Okay, so as you can see, since Chad has income of $50,000 a year w two income, you can see how the software estimated how much his employer is likely going to withhold in federal taxes for the entire year. So did you notice how cool to ones estimated taxes change from the $1,000 that Jennifer was supposed to pay as a single person? Now all of a sudden, let's say Jennifer is married And she's filing jointly, you notice how it changed from 1000 to 1500 dollars.

Now that's because the 1500 dollars encompasses Jennifer's profit and loss or rather, Jennifer's income, self employment income that she made for the first quarter of 2016. It also includes her husband's w two income that was holding for that particular quarter. So the issue that I have is that you there is no way to go in the system and break this 1500 dollars down to show how much of this 1500 dollars is attributed to Chad's paycheck. And how much should be attributed to Jennifer's self employment income. There's no way to break that down. So when you look at this, if you decide if you look at this and you don't realize that all of this 1520 if not attribute it to just yourself.

Employment income, you wind up sending the government a check for $1,520 which means now you have double paid because Chad your husband already had this already had positive his federal withholding rather parts of chats federal federal withholding for the first quarter includes part of this 520 so which means that his employer withheld income for the first quarter and you will you turned around and also paid what his employer withheld. So the question is what's the best way to determine how much of this in how much of this estimated taxes do should be paid in to the IRS? Well, the only thing that I can think of which is a bit of a pain, but it's the only thing I can really think of is that you look at your husband's or your wife pays your pay stub for January 1 through March. The First because we now we're dealing with the first quarter.

If we're in the second quarter, you will look at it from April 1 to may 31. And then in the second or third quarter, you look at it from June 1 to August 31. So when you look at the paychecks, or the pay stubs per quarter, what you need to do is to add up everything that was withheld by his employee. So everything that was on the federal income tax that was withheld, just add it up, and then subtract it from the number that's in QuickBooks self employed. So in other words, if you add up all of your husband's withholdings from January, from January 1 to march 31, and the total came to $520, then you're just going to go ahead and subtract the $520 from the thousand dollars and then all you have to pay into the IRS is $1,000. Now I know That might be a little bit tedious, but it's the only it's the only workaround that I can think of Intuit said that they will change that.

So hopefully they change that and they create a system where you can actually break it see the breakdown, so you know what you need to pay without having to go back and recalculate your husband's or your wife's income. Well, not income sorry, recalculate your husband or your wife. withholdings for any particular quarter. So outside of that, looking at this screen, the call to the estimated taxes screen is what you would need to look at to determine what you'd have to pay for any given quarter. And I strongly advise that you you know you try to make your quarterly estimated payments every quarter because it's so much easier to come up with 1500 dollars every three months. even come up with 20 $800 every three months than it is to be hit with a tax bill of over $7,000.

That's more painful. So if you try to make your estimated payments, no, throughout the year, then it just makes your life so much easier. When you file your taxes and you don't you don't have to come up with any money. Now at the end of every quarter to pay your taxes, you're going to click on this button, green button on the right hand corner that says pay now. Once you click on Pay Now, you're going to see the amount that is due for the quarter. And then it's going to ask you are you filing a joint or are you filing jointly with your spouse?

If you say no, then all you have to fill out is your social security number. And that's it. If you say yes, you're filing jointly, then you have to include your spouse's social social security number and your social security number. So once you've done NASA let's just come up with some phony numbers here. And let's do one for Jennifer. So once you have included your social social security number, then you're going to click on Continue.

Once you click on continue, you're gonna see you're going to, you're going to come to a screen with a voucher. So you have a couple of ways of paying, you can, you can print this voucher, and then you can follow the instructions by mailing your payment into the IRS. But me, you know, this is 2017. I don't think too many people run around here with checkbooks meaning out money. So another way you can actually make these payments, you can go online to irs.gov. And you can make your payments through the system either you can actually pay electronically with a check through the system, or you can pay with a credit card or a debit card.

So to me that's the best and the most easiest way to actually make payments rather than filling out a cheque, putting it in an envelope, going to the post office and then mailing it out. And we don't have to do all that we can just go online and do it electronically. So you can print this also. So just click on the Print button, and then you can either print it out and save it or you can just save it directly to a file. Because you definitely want to make sure you keep records of all of your payments. So once you've made the payment, whether it be a check if you if you choose to go that route, or if you make the payments via some type of online service, then what you want to do is you want to make sure you get a receipt, attach it to the voucher and then just file it away either in a regular filing cabinets or you can find it on your computer.

That way if there's any if there's ever any discrepancy about you not paying your estimated taxes, then you can pull it out and just say Here it is. Yes, I did pay it. So that's pretty much it. So in this lesson, we learned how to set up QuickBooks self employed to calculate our estimated quarterly taxes. And also we learned how including w two income in affects the overall amount of estimated taxes due. We also learned that Intuit didn't do the best job breaking out estimated payments due when w two income is part of the equation.

And I know I'm picking on I know I'm picking on Intuit. I mean, they're a great company. And I'm quite I'm quite sure that eventually they will fix it. That way they can make the lives of independent contractors and business owners and it was simpler because the whole purpose of using this type of software is to simplify your life and not make it more complicated by having you running around here. gathering up information and counting or calculating taxes that are withheld from your spouse's paycheck. And and none of you want to do that.

But you know, in the meantime, prior to QuickBooks finding a fix for this, that's all we can do. So hope you enjoyed this lesson and I'll see you in the next lesson.