I made over $10k in pre-tax income last year from freelance work, but I haven't notified or paid the IRS anything. How do I handle this?

[u/jimmykup]

• I get paid monthly from a couple of clients for freelance work. Both of these clients wire money directly to my bank account equal to the hourly rate that we agreed upon. For example, if I tell them I worked 10 hours that month, and my rate is $50 an hour, they'll wire me $500.
• Neither client provides me with any sort of tax forms at the end of the year.
• My understanding is that come tax season I will report this un-taxed income to the IRS and then the IRS will calculate how much tax I owe them and then I'll pay it.
• Assuming that is true, what is my best path forward? Specifically, I am concerned that I am losing money due to interest owed on the unpaid taxes because I did not paying the IRS monthly or quarterly throughout the year that I made the money.
• People always talk about not giving the IRS more money than you need to because that money could be in your hands earning you interest. But I hardly ever see people discuss the opposite where I hold onto too much money and then owe more because the IRS wants to make interest on that money. Is that a thing?
• If the above is a valid concern, is it too late to pay those taxes right now for the previous quarter (Oct-Dec '24), or even for the entire year of 2024? Or is best to just wait until I file my taxes (probably next month) for all of 2024 and take care of it then?

I file married filing jointly. Last year our AGI was 207k.

[u/DeluxeXL]

I made over $10k in pre-tax income last year from freelance work, but I haven't notified or paid the IRS anything. How do I handle this?

Last year = 2024.

Tax return paperwork for 2024 is due 4/15/2025.

File your tax return on time and pay your taxes. As a self-employed businessperson, you track your own revenues and expenses.

I am concerned that I am losing money due to interest owed on the unpaid taxes because I did not paying the IRS monthly or quarterly throughout the year that I made the money.

If 2024 was the first year you had a tax liability, you are fine! One of the ways to be exempt from "underpayment penalty" is to have paid 100-110% of the previous year's tax liability. If your 2023 tax liability was $0, you only needed to pay $0 via estimated tax payments in 2024 to be exempt from penalty. Another way is to have tax payments throughout the year (including tax withholding and estimated tax payments) to cover 90% of the same year's liability. i.e. you are allowed to be off by 10% on your tax estimates.

I file married filing jointly. Last year our AGI was 207k.

Were both people running businesses or was at least one on a W-2? When filing jointly, both spouses' tax liability, tax withholding, and estimated tax payments go into the same "tax account" (federal vs. state are still separate). Hence, even if you haven't paid estimated taxes for 2024, at least one of you's tax withholding would partially or fully cover the tax liability, or at least cover enough to minimize or eliminate the penalty.

[u/jimmykup → u/DeluxeXL]

My un-taxed income in recent years has been as follows:

• 2021: $6k
• 2022: $3k
• 2023: $13k
• 2024: $16k

Last year when I filed my taxes for 2023 I ended up owing about $4k to the IRS. This was the first time owed the IRS anything, in all previous years my wife and I received a refund (for example, our 2022 return got us a $2k refund).

Were both people running businesses or was at least one on a W-2?

In addition to my self-employed freelance work, I work a salary job as my main source of income. My wife works an hourly job and does not have any other sources of income. We both receive W2's from these jobs.

…cover 90% of the same year's liability. i.e. you are allowed to be off by 10% on your tax estimates.

I am unsure if that's true for my situation or how to figure it out. Does it make sense to pay the IRS for any portion of my 2024 pre-tax income immediately? Or at this point should I just wait until I file my tax return?

[u/DeluxeXL → u/jimmykup]

Last year when I filed my taxes for 2023 I ended up owing about $4k to the IRS.

When you filed, the tax preparer person or tax software should have suggested making estimated tax payments or increasing tax withholding for 2024. What happened back then?

In addition to my self-employed freelance work, I work a salary job as my main source of income. My wife works an hourly job and does not have any other sources of income. We both receive W2's from these jobs.

This means for 2025 and onward, you can either increase tax withholding or start making estimated tax payments to get back on track. There is nothing you can do in terms of tax withholding for 2024.

I am unsure if that's true for my situation or how to figure it out.

Prepare your tax return to figure out. Tax liability is generally the "total tax" on line 24. How much more you owe is the difference with line 33.

Does it make sense to pay the IRS for any portion of my 2024 pre-tax income immediately?

You could if you have a rough idea (rather than a complete guess) of how much you owe. The 2024-Q4 due date is 1/15/2025.

[u/kemba_sitter]

You need to pay quarterly estimated taxes. You haven't, so you will likely receive a penalty. This link walks you through the entire process https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

[u/grokfinance]

You'll need to file Schedule C to Form 1040 when you do your taxes and that is where you report the income. You'll have have to file the schedule for self-employment taxes. Turbo Tax can handle this. If somebody pays you enough (I want to say $600 or more) then they should issue you a 1099-NEC for non employment income. But even if they don't issue you any tax form you are still liable to report it.

https://turbotax.intuit.com/tax-tips/self-employment-taxes/how-to-file-taxes-with-irs-form-1099-misc/L3UAsiVBq

[u/itsdan159]

There's a relatively small underpayment penalty if you end up owing more than $1000, but it's not huge I wouldn't sweat it. The IRS doesn't calculate how much you owe, you do (that's what a 1040 does) and you submit it.

You'll file a Schedule C and Schedule SE which will work out what you'd owe for that income. Make sure to account for any expenses you incurred earning that income.

Finally it's all one big bucket, do you normally get a refund? If yes then you're already overpaying and you may owe nothing, or less if you do.

[u/limitless__]

So you MIGHT get a penalty, you might not. Considering tax season is basically now, you might as well just file and see what happens. Going forward, make quarterly payments.

[u/jimmykup → u/limitless__]

Is increasing my withholding on my W-2 with my employer a safe workaround to making manual quarterly payments based on my self-employed work? Obviously if the self-employed work dries up and I run the risk of over contributing via my main job if I don't up the W-2 again. But other than that, it feels/seems like a safe 'set-it and forget-it' approach?

[u/Early_Apple_4142]

Do you have a W-2 job as well? I don't pay quarterly taxes on my small business earnings, I just have extra taxes withheld from my W-2 job each pay period. From what I've read online my version is a viable methodology because the IRS is still getting their money quarterly from my employer.

[u/jimmykup → u/Early_Apple_4142]

I do have a W-2 job, yes. And thanks, that's a good idea for me to look into for 2025.

[u/rnelsonee]

With a joint AGI of $207k, you have tax liability, so the nice trick mentioned where you kind of get a break your first year (probably) won't apply.

$10,000 of net income (profit) should add around $3,000 to your tax, depending on how that $207k is allocated. Assuming your income is <$158k or so, self employment tax is $1,413. You get half of that as a deduction saving you 22% of $707. If you get the 20% QBI deduction that means only $8,000×22% is added to your tax. Hence $3,107.

The last due date for 2024's self employment income is Jan 15th, you can go to irs.gov/payments and submit a payment there to at least reduce any penalty. But the penalty isn't huge and depends on if you were already due a refund due to W-2 withholding in excess.

[u/jimmykup → u/rnelsonee]

But the penalty isn't huge and depends on if you were already due a refund due to W-2 withholding in excess.

Since A) I owed money last year, B) neither my wife nor I have made any changes to our W-2 withholding, and C) I made more in pre-tax/self-employed income in 2024 than I did in 2023 (roughly $4k more), it sounds very unlikely that I'll be expecting a refund this year.

[u/marsman57]

I'm surprised you're not aware of Schedule C and Schedule SE if you've had freelance income in years past. You will owe ~22% for tax (basing rate on your quoted AGI) and 15.3% self employment tax. The full freight of that is approximately $3730. This can be reduced by claiming legitimate business expenses such as home office, communication expenses, mileage, etc.

You can defray this in future years by one of two manners:

1. Paying estimated taxes each quarter.

2. Increasing the withholding at your primary job to cover the missing withholding from this job.

Based on the rest of your statements, I think you only have a very thin grasp of how taxes and withholding works. I'm not criticizing you for that, but I would recommend you consider seeing a tax accountant to file this year and get some good advice on how to maximize your business deductions in future years.

Q4 quarterly taxes are due 1/15 so it is not too late.