He is living in TN and pays rent. I will look at pub 334, thanks. My main concern is figuring out the quarterly estimated withholding. He will start new job soon, but first tax pymt due date is 4/18, so figuring out how much to have him pay is first priority.
This will take you through the process. https://www.irs.gov/pub/irs-pdf/f1040es.pdf
Thanks. Looks easy to pay online, it’s just the calculating that looks a bit daunting. His gross income this year should be comparable to last year - so I am looking at Federal tax for 2015 + twice Social Security withheld + Medicare as a rough estimate. Divided by 4 quarters of course. I wanted to give him an estimate for now.
Use the worksheet on page 6.
Not to complicate your calculations, but people who pay SE tax get to deduct 1/2 of it on the bottom of page 1 of the 1040, which alters what you owe in income tax.
Also, I believe (but I would verify) that the IRS won’t penalize you for underpayment of taxes as long as you pay in estjmates 100% of what you owed in taxes the previous year. Doing that won’t necessarily help your son budget for his taxes, but at least he’d know he wouldn’t owe any penalties.
Thank you! That was good info.
Shellfell is correct on the penalty. One can either pay in 90% of current year’s tax or 100% of the previous year’s tax to avoid the estimated tax penalty. This increases to 110% of previous year’s above a certain income level.
Most start-ups offer shares or options as some form of compensation in recognition of lower wages. Most likely shares in this case since it sounds like a LLC.