Hello, so i just recently started making some good money online selling a reselling a service. I use paypal for all my transactions i haven't received anything from them yet for taxes, i spoke to some people and they are telling me i need to file quarterly. I know paypal has started reporting to the IRS so i want to do everything properly and on time. In this first quarter i have grossed around $15,000 but after all my expenses i only got about $7,000 to keep. I do not know how long this money is going to be coming in and it really varies as some days i will make $50 in sales and other days over $1,000 in sales. So my question is do i have to file quarterly or can i just do it at the end of the year? I take it paypal will eventually send me something telling me how much i grossed? Also is it better to register a LLC or just stay as a sole proprietor, i have 3 full time odesk employees. I am only 20 and have only had my regular job as income which was really easy to do, so i know nothing about self employment taxes. Thanks in advance!
In the U.S. you need to pay estimated income taxes each quarter. However, there is a safe-harbor provision that states that you only need to pay the amount of your total tax from the previous year. Example: If your income tax in 2011 was $10,000, you will need to pay $2,500 in estimated taxes each quarter in 2012. Even if you make many times as much money in 2012, you will not be hit with penalties and interest if you withheld an amount equal to the total of your previous year's taxes. Warning: There is a big self-employment tax in the U.S. You will need to pay both the employee and the employer social security taxes. This amounts to approximately 15% of earnings. Finally, sometimes your annual income goes down. If that is the case, you can pay less in quarterly payments. However, you will need to run the numbers every quarter if you are not in the safe harbor. Finally, these are really accounting questions and your accountant should be on top of your quarterly payments.