• Julia is a data entry clerk, age 26, and single. • Julia has investment income and a consolidated broker’s statement. • Julia is self-employed delivering groceries for Quick Market on the weekends. She received a Form 1099-NEC and a Form 1099-K. She received additional cash payments of $535. • Julia uses the cash method of accounting. She uses business code 492000. • Julia provided a statement from the grocery delivery service indicating the fees paid for the year. These fees are considered ordinary and necessary for the grocery delivery business: o $150 for insulated box rental o $50 for vehicle safety inspection (required by Quick Market) o $600 for Quick Market fees • Julia also kept receipts for the following out-of-pocket expenses: o $80 for business parking o $300 for speeding ticket o $160 for Julia's lunches • Julia’s record keeping application shows she has driven a total of 2,500 miles during and between deliveries. She also drove 1,500 miles between her home and the first and last delivery of each day. o She placed her only vehicle, an SUV, in service on 3/15/2020. The total mileage on her SUV for tax year 2023 was 12,000 miles. Of that, 8,000 miles were personal miles. Julia will take the standard business mileage rate. • Julia is paying off her student loan from 2017, when she completed her undergraduate degree. • Julia is working towards her Master of Education degree to start a new career as an Associate Professor. She took a few college courses this year at an accredited college. • Julia took an early distribution of $3,000 from her IRA in April. She used $2,400 of the IRA distribution to pay her educational expenses. • If Julia has a refund, she would like it deposited into her checking account. Can Julia can make estimated tax payments to avoid owing tax next year?
Yes, Julia can make estimated tax payments to avoid owing tax next year. As a self-employed individual with income from her grocery delivery business and investment income, she is responsible for paying both income tax and self-employment tax on her earnings. Since she has multiple sources of income that do not have taxes withheld, such as the income reported on Form 1099-NEC, Form 1099-K, and additional cash payments, making estimated tax payments can help her avoid a large tax bill when she files her return and may prevent her from incurring underpayment penalties. Estimated tax payments are typically made quarterly, and the amount can be calculated based on her expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. Julia should use Form 1040-ES, Estimated Tax for Individuals, to calculate and pay her estimated taxes. It's important for Julia to keep track of all her business-related expenses, as these can be deducted against her self-employment income. However, certain expenses like the speeding ticket and her lunches are not deductible. The standard mileage rate can be used to calculate the deductible cost of business miles driven, but commuting miles (from home to the first delivery and from the last delivery back home) are generally not deductible. Regarding her IRA distribution, Julia should be aware that early distributions are typically subject to an additional 10% tax unless an exception applies. Since she used part of the distribution for educational expenses, she may qualify for an exception to
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