Figuring out estimated tax

If you are self employed it is very likely that you should pay estimated tax. This is what the IRS has to say about the topic in Publication 505.

General Rule
In most cases, you must pay estimated tax for 2010 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2010, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:

• 90% of the tax to be shown on your 2010 tax return, or
• 100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.

You can use a worksheet to make a more accurate calculation. 

You do not have to pay estimated tax for 2010 if you meet all three of the following conditions.

1. You had no tax liability for 2009.
2. You were a U.S. citizen or resident alien for the whole year. 
3. Your 2009 tax year covered a 12-month period.

There are special rules for farmers, fishermen, certain higher income taxpayers, aliens, and estates and trusts.

• Farmers and Fishermen
• Higher Income Taxpayers (The percentage of 2009 AGI changes from 100% to 110%.)
• Aliens (Resident aliens should refer to Publiciation 505. Nonresident aliens should review Publication 519 for more information about Form 1040-ES (NR))
• Estates and Trusts (use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.)