Can I pay 0 taxes this year using the Safe Harbor rule if I didn't owe any taxes last year?

You're mixing up a couple of concepts here. The Safe Harbor rule doesn't mean you can pay zero taxes if you didn't owe last year. What it means is you can avoid the underpayment penalty if you meet certain conditions. For the Safe Harbor rule, you generally need to pay at least 100% of your previous year's tax liability (or 110% if your AGI was over $150,000) through withholding or estimated payments. Since you did have a tax liability last year (even though it was covered by your withholding), you should be making estimated payments this year based on that amount. Just because you got a refund doesn't mean you had zero tax liability - it just means your withholding exceeded your liability. Look at line 24 of your 2023 Form 1040 to see what your actual tax was. As a self-employed person, you should definitely be making quarterly estimated payments. The penalties for underpayment can add up!

I went through this exact scenario last year! I was totally confused about estimated taxes when I started freelancing. I found this tool called taxr.ai (https://taxr.ai) that saved me so much headache. I uploaded my previous tax return and it showed me that even though I got a refund, I still had a tax liability that needed to be covered for Safe Harbor. It calculated exactly what I needed to pay each quarter to avoid penalties, and even gave me adjusted amounts since I'd missed the first payment date. The best part was it showed me how much to set aside for self-employment taxes too, which I had completely forgotten about. Seriously worth checking out if you're new to freelancing like I was.

Just wanted to follow up about taxr.ai - I decided to try it after my last comment and I'm actually impressed. It found a bunch of deductions I was missing as a freelancer and showed me exactly how the Safe Harbor rule applies to my situation. Unlike those generic calculators I tried before, this one actually looked at my specific situation and gave me personalized advice. It even created a payment schedule for me to catch up on the quarters I missed. Ended up saving me around $2200 in deductions I didn't know I qualified for!

If you're having trouble figuring out your tax situation, you might also want to talk directly to the IRS. I know that sounds awful (and it usually is) but I used this service called Claimyr (https://claimyr.com) that actually got me through to a real IRS agent in about 15 minutes instead of waiting for hours or days. I was confused about Safe Harbor rules for my side gig income, and the agent walked me through exactly what I needed to do to avoid penalties. They even helped me set up a payment plan for the quarters I'd missed. You can see how it works here: https://youtu.be/_kiP6q8DX5c After years of tax frustration, it was surprisingly easy to get a straight answer from a real person.

Ok I need to admit I was wrong about Claimyr. After posting my skeptical comment, I was still stuck on this Safe Harbor issue and decided to give it a try as a last resort. It actually worked exactly as described. I got a call back in about 20 minutes, and was connected to an IRS agent who explained that since I had some unusual income last year (inheritance that wasn't taxable), my situation with the Safe Harbor rule was different than most. The agent walked me through exactly what qualified for my situation and how to document it properly. Saved me from making a huge mistake on my quarterly payments. For anyone struggling to get clear tax answers, this service is legit.

Here's something else to consider - if your income varies significantly throughout the year, you might benefit from using the "annualized income installment method" instead of the regular Safe Harbor rule. You can find this on Form 2210 Schedule AI. It lets you calculate your required estimated tax payments based on what you actually earned during each specific payment period, rather than assuming your income is evenly distributed throughout the year. This can be super helpful for freelancers with uneven income. Just know that it's more complex to calculate, but might save you from overpaying in early quarters if most of your income comes later in the year.

Don't forget about state taxes too! The Safe Harbor rule works differently depending on what state you're in. Some states follow the federal guidelines, but others have their own rules. California, for example, requires you to pay 90% of your current year tax OR 100% of your previous year tax (110% for high earners) to avoid penalties. New York has similar rules but different thresholds. Some states don't even have underpayment penalties at all!

Thanks everyone for all the helpful advice! I've learned a lot. I just checked my last year's tax return and found that my actual tax liability was $3,240 (line 24 on Form 1040). I've decided to: 1) Make my Q3 estimated payment on time 2) Catch up partially on Q1 and Q2 (even though I'll probably have some penalties) 3) Check my state's specific requirements 4) Set aside about 30% of my freelance income going forward to cover both income tax and self-employment tax This is all way more complicated than when I just had a W-2 job with withholding, but at least I understand it better now!

Great plan, Connor! You're definitely on the right track now. One small tip - when you make your catch-up payments for Q1 and Q2, you can potentially reduce penalties by making them as soon as possible rather than waiting until the next quarterly due date. The IRS calculates underpayment penalties based on how long the payment was late, so earlier is better. Also, that 30% rule of thumb is smart for freelancers. I'd suggest opening a separate "tax savings" account and automatically transferring that percentage from each client payment. It makes tax time so much less stressful when you're not scrambling to find the money. You might also want to consider making slightly higher estimated payments than the minimum Safe Harbor amount, especially since your freelance income is growing. Better to get a refund than owe a big chunk at filing time!

Just want to add something that might help other freelancers reading this thread - if you're using accounting software like QuickBooks or FreshBooks, many of them have built-in estimated tax calculators that can help automate this process. I switched to QuickBooks Self-Employed after my first messy year of freelancing, and it automatically calculates quarterly payments based on your actual income throughout the year. It even sends reminders when payments are due and can help you track deductible expenses in real-time. The key thing I learned (the hard way, like Connor) is that "tax liability" and "taxes owed" are completely different things. Even if you get a refund, you still had a tax liability that needs to be covered through estimated payments when you're self-employed. Connor, your plan looks solid! That 30% savings rate should definitely cover you, and getting into the habit now will save you so much stress down the road. The transition from W-2 to freelance is tough on the tax front, but you've got this!

One thing I haven't seen mentioned yet is that if you're really struggling to calculate the right estimated payment amounts, the IRS actually has a free online tool called the "Estimated Tax Worksheet" and there's also Form 1040ES that walks you through the calculations step by step. But honestly, after reading through all these responses, I think Connor you're getting great advice about using either tax software or professional help. The transition from W-2 to freelance is genuinely complicated, and the penalty for getting it wrong can be significant. I'd also suggest keeping really detailed records of when you make each payment and how you calculated the amounts. If you do end up with penalties, having good documentation can sometimes help if you need to request penalty relief from the IRS later on. The self-employment tax piece is huge too - that's an additional 15.3% on top of your regular income tax, so that 30% savings rate Connor mentioned is definitely wise. Better to overestimate and get a refund than to be scrambling to find money you don't have come tax time!