Tax season may be a difficult time for independent contractors and self-employed people. You need to gather papers and documents, and a return date must be set (or hire a professional to help work with you). Even signing a sizable check to the IRS is required occasionally. Tax time comes four times a year for freelancers, which is not good enough to do just once a year.
Your tax obligations might need to be settled through anticipated quarterly taxes depending on the type of work you do or how you are paid. You may immediately prepare your taxes using a quarterly tax calculator or a 1099 tax calculator if you need assistance with tax calculation.
In the United States, taxes are paid when income is earned under a pay-as-you-go system. Using predicted quarterly tax payments, freelancers are responsible for handling their own tax obligations.
What is the quarterly estimated tax?
All of your company’s annual taxes to the IRS are divided up into 4 sections and are included in your quarterly anticipated taxes. You can choose to pay your taxes in installments throughout the year rather than in one lump payment at the end of the year.
If you:
Run your business and wait to have an outstanding federal tax debt of more than $1,000 (or $500 for corporate entities) before paying estimated taxes.
For the current year that you are employed, you are making tax payments. Since your tax returns haven’t been submitted yet, it’s hard to know exactly how much you owe.
The estimated portion starts to play at this point. If you pay more than you need to on your taxes, you will receive a refund by the name of tax compensation. The IRS could levy extra fees if you make an inadequate payment.
Who Is Eligible to Pay Quarterly Tax Estimates?
If a person expects to owe $1,000 or more in taxes when their tax return is submitted, including independent contractors, sole proprietors, partners, and corporation shareholders, they often have to make quarterly anticipated tax payments.
There may be penalties due if you don’t pay enough tax. Regardless of whether you receive a tax refund at the end of the year, there may be a penalty assessed if your quarterly taxes are paid late.
How Much Taxes Do I Owe Each Quarter?
There is no set amount to figure out how much tax you’ll owe, so figuring it out might be challenging. Your tax bracket can be part of the answer and any available credits and deductions.
However, bear in mind that your projected tax payment also accounts for income and self-employment taxes. 15.3% of your net self-employment income will be subject to taxes in 2021. Consequently, to account for self-employment tax, increase your expected pay taxes by 15.3%.
You’ll need to create an estimate if you’ve just begun freelancing. If your income fluctuates and you are unsure of the benefits, this may be difficult. When estimating how much you will owe in quarterly taxes, you can use IRS Form 1040-ES as guidance.
It gets simpler as you get more collaborative. You can manage your income and expenses and make the procedure of making your quarterly tax payments simpler, use a quarterly tax calculator. The payments also depend on your income for self employed individuals.
In addition to quarterly payments, Medicare and Social Security taxes, called SECA taxes are a requirement. These self employed taxes are required for every self-employed person.
When Are Payable Estimated Taxes Due?
Knowing how to pay quarterly taxes is important and when the payments are required. The 15th of April, the 15th of June, and the 15th of September in a given year are typically the deadlines for quarterly taxes. You have to pay anticipated taxes on the next business day if any of those days fall on a weekend, a legal holiday, or both.
Use the pay slips attached with Form 1040-ES to return your quarterly taxes to the IRS, or use IRS Direct Pay to pay online.
Please keep in mind that the location of your home may also mean you need to pay quarterly taxes to your city and state. Each authority has its own fees, paperwork, and possibly other deadlines. Make sure all of your bases are added by conducting some research with the Revenue Department or working with your tax specialist.
Giving priority to quarterly anticipated tax payments might be challenging if you manage a fluctuating income, especially if this is your first year of freelancing. To take some bites out of the tax season, you should carefully review your income and expenses and set aside your tax payments.
Following the first year of quarterly tax reimbursement, you will have a clear sense of your safe harbor tax expenses and a mechanism to make everything run smoothly.
How to Calculate Your Estimated Quarterly Taxes in 3 Easy Steps
To the IRS, you can submit one-fourth of the amount you estimate you would owe for the year. As an illustration, you may send $2,500 every three months if you anticipate incurring $10,000 in expenses for 2022. People who have a good sense of their future earnings or whose income is fairly consistent throughout the year may find this to be a beneficial strategy.
Using your prior year’s earnings as a basis for determining your annual tax liability is another option. For people with different income levels, this is typically suitable. A reliable assessment of your income and current tax deductions is necessary for your tax annualization at the end of each quarter.
Your income assessment and tax penalty will both be shown on IRS Form 1040-ES, either manner. All the rules and details are in IRS Publication 505, and a reliable tax professional will assist you with the form completion and computation.
You can fill out an additional Form 1040-ES and calculate your estimated tax for the next quarter if you think your income may have been overstated or understated. In order to explain why you did not submit equal payments, you might need to attach an additional form, IRS Form 2210, to your annual return when you file it.
If you made an excessive payment, you might get a refund or apply the excess to future payments.
If you have questions about the estimates, it is advisable to speak with a certified tax professional. Alternatively, you may use a quarterly tax calculator to determine the exact amount you must pay. Estimates can get complex more quickly.
You may compute your quarterly taxes using this widget:
Conclusion
It is almost never nice to pay taxes. It does not, however, follow that it must be complicated. Spend some time today understanding how everything functions, and you will be on the right track to managing anticipated taxes like an expert. In addition, a quarterly tax calculator is another great tool for easily calculating your taxes.
