Guide · First year self-employed
First Year Self-Employed Taxes: The April Bill Nobody Warns You About
In your first year self-employed, nobody withholds tax from your 1099 income, and self-employment tax comes on top of income tax. In our illustration, a real estate agent who moved from a salary to commissions in June owes $13,563 in April, plus an underpayment penalty. Three quarterly payments of about $4,521 would have spread that out.
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By Alexander Mungov, CPA
Last updated: September 13, 2026
An example: the first year on a 1099
A real estate agent leaves a salaried job in June and starts earning commissions on a 1099. Business goes well. Then April arrives with a bill for about $13,500.
This agent is an illustrative composite built from round numbers, not a real client. The assumptions are listed further down the page.
Federal and Colorado tax due in April, after what the old job withheld
What each of three quarterly payments would have been instead
Profit from seven months of commissions
1099 first year taxes
How the first-year tax bill builds up
On a salary, the employer withholds tax from every paycheck. On a 1099, nobody does. Self-employment tax comes on top of income tax, because you now pay both halves of Social Security and Medicare.
| The year | Amount |
|---|---|
| Salary, January to May | $27,000 |
| Commissions, June to December, less $12,000 of business costs | $58,000 |
| Self-employment tax on the commissions | $8,195 |
| Federal income tax, after the standard and 20% business deductions | $6,876 |
| Colorado income tax | $2,392 |
| Already withheld by the old job | -$3,900 |
| Due in April, plus an underpayment penalty | $13,563 |
Self-employment tax
Self-employment tax in your first year
Self-employment tax is Social Security and Medicare for people who work for themselves. On a salary, you and your employer each paid half. On a 1099, you pay both halves: 15.3% on 92.35% of your net profit. The IRS applies it once net earnings from self-employment reach $400, and it is owed even when your income tax is low.
You get part of it back as a deduction: the employer-equivalent half comes off when you figure adjusted gross income. In the example, self-employment tax on $58,000 of profit is $8,195, more than the federal income tax on the whole year.
Quarterly estimates
Quarterly estimated taxes for a real estate agent
Nobody withholds tax from commissions, so you pay it yourself during the year through quarterly estimated payments. Three habits prevent the April surprise:
- Quarterly estimates. Payments due June 15, September 15 and January 15 would have spread this into about $4,500 each and, using the annualized income method, avoided most or all of the underpayment penalty.
- A set-aside rule from the first commission. Moving a share of every check into a separate tax account means the money is there when the date comes.
- Books kept from day one. Every business cost you can prove lowers both taxes at once.
The IRS due dates for the four payment periods are April 15, June 15, September 15 and January 15 of the next year. When a date falls on a weekend or legal holiday, the payment is on time the next business day. Colorado uses the same four dates for its own estimated payments.
Colorado
The Colorado trap: a sales tax account for a service business
Some new Colorado businesses end up with a sales tax account they do not need, often from the state registration form, even when what they sell, like real estate commissions, is not taxable. If no returns are filed on it, the state can send estimated failure-to-file bills every month, and they add up. The fix is to file zero returns for the open periods, ask for the penalties to be removed, and close the account. It is much easier before the notices start than after.
The Department of Revenue’s sales tax guide says sales of services are generally not subject to Colorado sales tax. Its filing rules say a sales tax return is due every filing period, even if no sales are made, and that if you don’t file, the Department files a return on your behalf and bills an estimated amount until an actual return is filed.
Deductions
Deductions new agents miss, or get wrong
- Mileage only for the months you are self-employed, with a log: 70 cents a mile for 2025 (IRS Publication 463).
- A home office used regularly and only for the business.
- A car you already owned and start using for business: depreciation starts from the lower of its cost or its value when you switch, usually without the bonus depreciation that new purchases get.
- MLS and board dues, E&O insurance, continuing education, marketing, and the business share of your phone.
Next year
Next year: should you become an S corp?
At around $60,000 of profit, an S corporation starts to come close to paying for itself, and not before. We run that check every year before it matters, and we will tell you if it does not pay. See Is your S-corp still worth it?
Solo · for sole proprietors and single-member LLCs
Books, quarterly estimates and your return, with a CPA
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- A quarterly estimate figure before every due date
- Your 1040 with Schedule C and one state, signed by a named CPA
- A deadline calendar, including state accounts like the one above
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A named CPA reviews your books and signs your return. Details are on our small business prices and tax return prices pages, and our small business tax planning page covers the rest of what we do.
Assumptions. Single filer, tax year 2025. Salary $27,000 with $3,000 federal and $900 Colorado withheld. Commissions $70,000 less $12,000 of costs. Self-employment tax 15.3% on 92.35% of profit. Federal standard deduction $15,750 and 2025 brackets. Qualified business income deduction 20%. Colorado 4.4% of federal taxable income. Underpayment penalty not included. Estimates split evenly over three dates.
This is an illustration built from round numbers, not a client’s return and not advice for your situation. Your results depend on your income, deductions, state and filing status. M2 CPA, LLC is a licensed CPA firm in Colorado; Alex Mungov, CPA.
Questions
Frequently asked
Do I have to pay quarterly estimated taxes in my first year self-employed?
Usually, yes. The IRS says sole proprietors generally have to make estimated payments if they expect to owe $1,000 or more when they file. Colorado requires them if you expect to owe more than $1,000 of net Colorado tax after withholding and credits.
When are quarterly estimated taxes due?
April 15, June 15, September 15 and January 15 of the following year. If a date falls on a weekend or legal holiday, the payment is on time the next business day. Colorado uses the same four dates.
My self-employment income started mid-year. Do I still owe the April payment?
Maybe not in full. The IRS says that if your income comes in unevenly during the year, you may be able to avoid or lower the penalty by annualizing your income and making unequal payments. That is figured on Form 2210 when you file.
How do I avoid the underpayment penalty?
The IRS says most people avoid it if they owe less than $1,000 after withholding and credits, or if they paid at least 90% of this year’s tax or 100% of last year’s tax, whichever is smaller, through withholding and estimates.
How much is self-employment tax in the first year?
The same as any year: 15.3% (12.4% for Social Security and 2.9% for Medicare) on 92.35% of your net profit, once net earnings reach $400. You deduct the employer-equivalent half when figuring adjusted gross income. In our example it was $8,195 on $58,000 of profit.
Does a service business need a Colorado sales tax account?
Usually not for the services themselves. The Colorado Department of Revenue says sales of services are generally not subject to Colorado sales tax. A service business that also regularly sells goods to consumers is a retailer for those sales. If an account is open, a return is due every filing period even with no sales, or the Department files an estimated return and bills it.
More
Related guides and prices
Is my S-corp worth it?
The break-even math at four profit levels, and when an S corp costs more than it saves.
Small business tax planning
Entity choice, estimates and planning before year-end, not just filing.
Small business prices
Solo and Company tiers, with QuickBooks and payroll at Intuit’s prices shown separately.
Starting out on your own?
Tell us what you have earned so far and how you keep your books. We will tell you what to set aside, which dates matter, and whether any state accounts need attention.