Figuring out my tax obligations as newly self-employed in Texas - confused about timing!

You've got a few things to unpack here, but don't worry - it's manageable! For your 2023 income, you have two options. You can either make an estimated tax payment for Q4 of 2023 (which was due January 16, 2024) OR you can pay it all when you file your 2023 tax return by April 15, 2024. If you wait until you file your return, you might face a small underpayment penalty, but if this is your first year with self-employment income, the penalty may be waived. When you file your return, you'll include both your W-2 income from your regular job and your self-employment income on Schedule C. The self-employment tax (15.3% for Social Security and Medicare) will be calculated on Schedule SE. For 2024, since you're continuing this work, you should plan on making quarterly estimated tax payments (due April 15, June 15, September 15, and January 15, 2025) to avoid underpayment penalties next year.

I went through the exact same situation last year and discovered taxr.ai (https://taxr.ai) which literally saved me from a major headache. I was doing contract work through Upwork and had no idea how to handle the quarterly payments or what forms to use. When I uploaded my PayPal statements and previous W-2, the system automatically calculated my estimated quarterly payments and gave me clear instructions on what to do. It even showed me what deductions I qualified for as a self-employed person that I had no clue about - home office, portion of internet, etc. The nice thing is it gives you a clean breakdown of federal vs self-employment tax so you understand exactly what you're paying and why. Might be worth checking out since you're in the same boat I was!

I was super skeptical about using any tax software for my self-employment situation at first. After struggling with quarterly payments last year and getting hit with a penalty, I decided to try taxr.ai based on recommendations here. I'm actually shocked at how well it worked for my situation. It immediately identified that I could deduct mileage for client meetings (which I had no idea about) and helped me properly categorize some expenses I was on the fence about. The quarterly payment reminders alone were worth it. What surprised me most was how it handled my mixed income situation (W-2 plus 1099 work) and calculated the correct estimated payments that prevented any penalties this year. Just wanted to follow up and say sometimes these tools actually do work as advertised!

If you're having trouble getting answers from the IRS about your situation, I'd recommend Claimyr (https://claimyr.com). I was in a similar situation last year - confused about estimated payments and couldn't get through to the IRS for specific guidance on my situation. I was on hold with the IRS for literally hours before I gave up. Then I found Claimyr and they got me connected with an actual IRS agent in about 15 minutes. The agent walked me through exactly what I needed to do about my missed quarterly payment and helped me understand how to avoid penalties going forward. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it's basically a service that navigates the IRS phone tree for you and calls you back when an agent is on the line. Saved me so much time and frustration!

I want to follow up on my skeptical comment about Claimyr. I decided to try it after struggling to get through to the IRS for three days straight about my missed quarterly payment situation. I'm honestly stunned at how well it worked. I submitted my request around 8am, went about my day, and got a call around 11am saying "Please hold for an IRS representative" - and then an actual IRS agent was on the line! The agent helped me understand exactly how the penalty would work for my missed quarterly payments and worked out a plan for me going forward. This saved me so much stress and probably a day's worth of productivity I would have lost sitting on hold. For anyone dealing with self-employment tax questions that require talking to an actual human at the IRS, this service is legitimately helpful.

One thing no one has mentioned yet - if your regular W-2 job had enough taxes withheld, it might actually cover your self-employment tax obligation too, especially since you only did the contract work for a few months. Check out the "safe harbor" rules. If your withholding for 2023 covers at least 90% of your total tax liability OR 100% of your 2022 tax liability (110% if your AGI was over $150,000), you won't face an underpayment penalty even if you didn't make estimated payments. This saved me last year when I started freelancing but had already had a bunch withheld from my day job earlier in the year.

I've been self-employed in Texas for 5 years now and the best advice I can give is to set aside 25-30% of your earnings right away in a separate savings account. That way when tax time comes, you're not scrambling. Also, don't forget that Texas has no state income tax, which is one less thing to worry about compared to folks in other states!

The safe harbor rule that Nina mentioned is huge and could save you from penalties! Since you worked a regular W-2 job through July 2023, there's a good chance you already had enough taxes withheld to meet the safe harbor requirements. Here's what you need to check: Look at your 2022 tax return (Form 1040, line 24) to see your total tax liability. If your 2023 W-2 withholding equals or exceeds that amount, you're completely protected from underpayment penalties regardless of when you pay your self-employment taxes. For your situation with $5600 in self-employment income from October-December, you're looking at roughly $861 in self-employment tax (15.3%) plus regular income tax on that amount. If your W-2 withholding already covered your safe harbor requirement, you can simply pay everything when you file your 2023 return by April 15th without any penalties. Going forward for 2024, definitely start making quarterly estimated payments since you'll have self-employment income all year. The 25-30% rule Ruby mentioned is spot on - I'd lean toward 30% to be safe since you'll owe both regular income tax and the 15.3% self-employment tax.