About this case study
The situation
A software contractor in Austin left a salaried job and now works for three clients, each sending a Form 1099-NEC. They expect about $80,000 of net profit on Schedule C for the year. No employer withholds tax any more, so the IRS expects payments during the year.
What they needed
- An estimate of self-employment tax and federal income tax for the year.
- A quarterly amount that avoids an underpayment penalty.
- The four due dates, with their IRS source.
- A way to update the estimate if income changed mid-year.
How TaxOrch handled it
- 1Gather the figuresInvoices, 1099s from last year and the prior-year Form 1040 were uploaded and read.
- 2Compute self-employment taxThe US calculator applied 92.35% of net profit as net earnings and 15.3% self-employment tax, citing the IRS.
- 3Add income taxIncome tax was calculated from the IRS brackets and standard deduction for the tax year, read from the verified data store rather than recalled by a model.
- 4Compare safe harboursTaxOrch showed the required annual payment under each rule and asked which the contractor preferred, then split it into four payments.
- 5Confirm the due datesEach Form 1040-ES due date was confirmed against its IRS source.
The result
| Line | Amount |
|---|---|
| Net profit (Schedule C) | $80,000.00 |
| Net earnings from self-employment (92.35%) | $73,880.00 |
| Self-employment tax at 15.3% | $11,303.64 |
| Deductible half of self-employment tax | $5,651.82 |
| Self-employment tax share of each quarterly payment | $2,825.91 |
| Payment | Usually due |
|---|---|
| First | April 15 |
| Second | June 15 |
| Third | September 15 |
| Fourth | January 15 of the following year |
The income tax part depends on the year's brackets, deductions and any other income, so TaxOrch adds it from the IRS figures for the year you ask about and shows the working. To avoid a penalty, the contractor generally needs to pay the smaller of 90% of this year's tax or 100% of last year's (110% if last year's adjusted gross income was over $150,000).
What TaxOrch did not do
- It did not make the payments. The contractor paid through IRS Direct Pay.
- It did not file a return; it produced a draft estimate marked as not filed.
- It did not choose the safe harbour; it showed both and asked.
- It did not calculate Texas income tax, because Texas has no individual income tax.
Try it yourself
Contractors usually choose Professional for several income streams. See tax help for freelancers and the US tax guide.
White-label licenceTaxOrch under your firm's brandYour name, logo and web address on the app your clients use, hosted and run by TaxOrch. Priced on the clients and users it will serve.
Try it firstA demo on your own questionsBook a live demo, or ask for a demo account and run your own questions, documents and a client case before you commit to anything.
Frequently asked questions
How is self-employment tax calculated?
- Net profit is multiplied by 92.35% to give net earnings from self-employment, and 15.3% is charged on that amount, up to the Social Security wage base for the 12.4% part. Half of the tax is deductible when working out adjusted gross income.
When are quarterly estimated taxes due?
- Usually April 15, June 15, September 15 and January 15 of the following year, moving to the next business day when a date falls on a weekend or holiday.
Did TaxOrch pay the IRS?
- No. TaxOrch does not execute payments. It works out the amounts and reminds you before each due date.
Sources
Related on TaxOrch
- US tax guideForms, deadlines and deductions.
- Tax deadlinesDue dates with their official source.
- All case studiesMore worked examples.