I didn't file as an independent contractor, what should I do?

Q: I was a personal trainer (independent contractor) part-time last year and didn't know I had to make payments as an IC and made less than $4000. I know I have to file a Schedule C-EZ. I was wondering if I should submit a Schedule ES? I'm not quite sure what to do at this point and am worried that I might be charged a penalty. I do work full-time and took extra out of my federal tax to try to compensate. - Lisa

The following answer was provided by James Guarino, CPA, Archambault & Associates.

A: I am assuming you are asking whether or not you should file an estimated tax voucher (Form 1040-ES) for 2003. January 15, 2004 was the last date to file a "timely" fourth quarter estimated tax voucher for 2003. Any tax balance you owe for 2003 should be paid no later than April 15, 2004.

The underpayment of tax penalty will not apply if, your 2003 tax liability (after deducting your Federal withheld tax) is less than $1,000.

Even if you have a net tax liability of $1,000 or more, there are "safe harbor" exceptions that allow you to avoid the underpayment penalty. These are explained in the instructions to form 2210.

In terms of estimated tax payments for 2004, you need to determine whether or not your salary withholdings will cover the additional amount of tax you will owe from your 2004 self-employment income. This additional tax includes the "self-employment tax" as well as the "income tax" computed on your self-employment income. If you estimate that the tax shortfall will exceed $1,000, you should plan to pay the difference in quarterly estimates beginning on April 15, 2004. The remaining estimated tax payments are due June 15th, September 15th and January 15th, 2005.

You should also be mindful that Massachusetts imposes underpayment of tax penalties as well. MA estimated tax payments have the same due dates as Federal.