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Got hit with $18K tax bill from Upwork 1099 income - should I have been paying quarterly?

Started by taxconfused_5 · Feb 28, 2025 · 6 replies
For informational purposes only. Not legal advice.
TA
taxconfused_5 OP

Just filed my 2024 taxes and I'm in shock. I made $75,000 on Upwork last year (my first year freelancing full-time) and I owe $18,000 in taxes plus $800 in penalties.

I had NO IDEA I was supposed to pay taxes quarterly. I thought freelancers just filed once a year like W-2 employees. Now I'm scrambling to come up with $18K.

Questions:

  • How much should I have been paying quarterly?
  • Can I negotiate the penalties since this was my first year?
  • What deductions am I allowed to take to reduce this?
  • How do I calculate quarterly payments for 2024 so this doesn't happen again?

Feeling really stupid right now. Why doesn't Upwork warn people about this?

TA
taxconfused_5 OP

@CPATaxHelp_14 - I used TurboTax self-employed version but I don't think I caught all deductions. Should I hire someone to review?

@morgan_r_5 - I claimed home office and internet but didn't know about the Upwork fees! That's huge.

Setting up a payment plan with IRS today. They said I can do $800/month.

RK
rachel_k2_4

YES hire a CPA to review. My first year I used TurboTax and left $6,000 on the table in deductions. A CPA charged me $400 and found $6K more in write-offs. 15x ROI.

Also, for 2024, set aside 30% of every payment immediately. Open a separate savings account called "Tax Savings" and transfer 30% there the day you get paid. Treat it like it doesn't exist.

CP
CPATaxHelp_14 CPA

@taxconfused_5 - Definitely hire a CPA for a review, especially since you're within the amendment window. The SEP IRA suggestion from @nursing_life_12 is excellent.

For quarterly estimates in 2024, here's the schedule:

  • Q1 (Jan-Mar income): Due April 15
  • Q2 (Apr-May income): Due June 15
  • Q3 (Jun-Aug income): Due September 15
  • Q4 (Sep-Dec income): Due January 15, 2024

Calculate 25-30% of your net income after expenses each quarter and pay via IRS Direct Pay or EFTPS.

CO
CounselK_13

Thank you SO much for this thread. I just started freelancing on Upwork in January and had no idea about quarterly taxes. Just set up a seperate savings account and starting transfering 30% of every payment like DigitalMarketer_Pro suggested.

Also found the upwork tax calculator super helpful for estimating what I'll owe. Wish Upwork made this more obvious during onboarding tbh

TH
throwaway92847_7

Quick question - does the SEP IRA contribution deadline apply if I file for an extension? My accountant mentioned I could have until October to contribute for 2024 if I extend. Is that right?

Also curious if anyone here has compared Solo 401k vs SEP IRA? Trying to figure out which makes more sense for someone making ~$80k on Upwork.

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taxconfused_10 Verified Attorney

Update: successfully resolved my dispute through arbitration. Total time from filing to award was about 4 months. The arbitrator awarded me the full amount plus attorney fees because the contract had a prevailing party clause. Always check if your contract has fee-shifting provisions.