The Six-Step Beginner’s Guide to Paying Quarterly Estimated Taxes
November 20, 2018
Congratulations! You’ve made it to the other side. You’re your own boss now and you get to call the shots. But you also have to do the other “jobs of the job” that keep your business running, like doing taxes, managing your books, marketing, finding clients, etc. You may find that the time to live the life you set out for gets wrapped up in all the other parts of your self-employment.
Doing quarterlies (taxes you pay on a quarterly-like schedule) on top of annual taxes can not only be time-consuming, it can seem overwhelming and scary at first. Whether you’re planning your first quarterly or are looking for ways to make things a bit easier, here is a simple, step-by-step guide to help make the process seem a little less taxing.
- Understanding Freelance Taxes
- Step 1: Adding Your Tax Deadlines to Your Calendar
- Step 2: Gathering Your Documents
- Step 3: Calculating What You Owe
- Step 4: Setting Aside Money for Taxes
- Step 5: Making Your Payments to the IRS
- Step 6: Making Your Payments to State Tax Authorities (if applicable)
- Special Situations
- Making the Process Work for You
Understanding Freelance Taxes
While W-2 employees have taxes withheld from each paycheck, freelancers or anyone self-employed aren’t subject to withholding. If you expect to owe at least $1,000 in taxes when you file your annual return, you’ll have to make estimated quarterly tax payments.
Step 1: Adding Your Tax Deadlines to Your Calendar
Let’s start with getting familiar with the tax schedule so you can avoid payment penalties. Below are general due dates for most [state and federal] estimated tax payments. The dates may change by a day or two each year, but it may be helpful to have a general sense of when taxes are due.
General Due Dates for Estimated Tax Installment Payments
|Taxable income earned:||Make a payment by:|
|January 1st – March 31st||April 15th|
|April 1st – May 31st||June 15th|
|June 1st – Aug 31st||Sept. 15th|
|Sept 1st – December 31st||Jan. 15th next year|
Step 2: Gathering Your Documents
Locate last year’s tax returns and any Form 1040-ES (Estimated Tax for Individuals) vouchers. Have an idea of how much self-employed income you’ve earned or make an educated guess if this is your first year. You’ll also want to figure out which of your business expenses may be tax-deductible. Find out what you can deduct here.
Step 3: Calculating What You Owe
The Form 1040-ES is a simple worksheet where you’ll enter your income and expenses, then calculate how much you may need to pay the government. You can adjust the amount on your Form 1040-ES throughout the year if needed.
You’ll also want to know what your tax bracket is. The charts on page seven of the 1040-ES show you where you fall within the 10 to 37 percent tax brackets. As your business and profits grow, so will your tax contributions. And if you’ve recently been married or become the new primary breadwinner of your home, that will change your estimate, too. If you have questions about how much you’ll owe, we recommend consulting your favorite tax advisor.
Step 4: Setting Aside Money for Taxes
If you don’t already, you’ll want to have a special account dedicated to paying taxes. Deposit a percentage that best represents your tax obligation (e.g. 30%) from each client payment into this account for tax time. Even if you didn’t save enough, paying something is better than paying nothing—though down the line, there may be consequences for falling behind.
Step 5: Making Your Payment to the IRS
So, you have figured out the estimated amount of taxes you’ll owe and when to pay them. What next? Fortunately, there are several options when it comes to paying the government.
For those who prefer snail-mail, payment vouchers are attached to the 1040-ES that you can print and mail with a check.
You can also pay by phone with a debit or credit card:
- Official Payments | 1-888-UPAY-TAXTM (1-888-872- 9829) | www.officialpayments.com
- Link2Gov Corporation | 1-888-PAY-1040TM (1-888-729- 1040) | www.PAY1040.com
- US, Inc. | 1-844-PAY-TAX-8TM (1-844-729-8298) | www.payUSAtax.com
Step 6: Making Your Payments to State Tax Authorities (if applicable)
Most states require state income tax payments. You can find your state’s 1040 tax forms and where to pay your taxes here:
Sometimes, emergencies come up and you may need to file for an extension.
If you ever find yourself in a tough situation — say you become disabled or experience substantial hardship in your business — a method of reducing your penalty for taxes owed may be available. Please refer to the Annualized Income Installment Method, and talk with your tax professional about this method (if the need should arise).
Making the Process Work for You
While you can’t avoid doing your quarterlies, you can shift your perspective to make the process seem beneficial to you. Since you don’t get regular reviews from an employer anymore, you can take this time as an opportunity to view quarterly tax time as a ritualistic check-in and evaluate your business of one. By breaking down the process into easy-to-digest steps, it won’t seem so bad after a couple times. After all, making your work your call is definitely worth it.
This guide is also available in checklist format. For a simpler approach to quarterly estimated taxes, our service, bSolo, is a smart, quarterly tax assistant that helps you automatically save a percentage of each deposit and pay your taxes on time, every time. Learn more at bSolo.com.