Published on December 17th, 2022
There are several advantages to working for yourself, like the freedom from reporting to a boss and flexible working hours. On the other hand, working for oneself makes obligations like calculating and paying quarterly taxes more burdensome. You can use a quarterly tax payment calculator to figure out your taxes, or if you need more assistance, speak with a financial expert.
How do quarterly tax payments work?
You must pay quarterly taxes, which are sometimes known as estimated taxes, in advance for your yearly tax returns.
You pay them annually because they operate on a pay-as-you-go basis. A portion of the relevant taxpayers’ anticipated annual income tax is paid at the beginning of each quarter. As a result, these payments constitute assessments. You can use a quarterly tax calculator to help with all your quarterly tax needs.
Social Security, Medicare, and your income tax are all included in these recurring tax payments. As a result, you should familiarize yourself with how these taxes are divided: the income tax and the self-employment tax.
Income tax rates are based on those that salaried workers pay. The tax rate for self-employment then comes out to be 15.3%. The costs of Social Security and Medicare are covered by this.
Why does the government want estimated tax payments every quarter?
Find out who is eligible to pay quarterly taxes and why the IRS needs them before making any plans for how to do so.
The income tax system in the United States is a pay-as-you-go one. In a system like this, taxpayers pay as they earn money. The government can therefore impose holding-back fees on W-2 employees and quarterly tax payments on self-employed individuals.
Your taxes are not taken out of your paychecks if you operate as a freelancer or self-employed contractor. Consequently, the IRS collects income taxes through quarterly tax payments.
If you are married and file individually with an AGI (adjusted gross income) between $150,000 and $75,000, the requirement is 110%. Farmers and fishermen are exempt from this requirement.
If you work in one of these professions and derive roughly 66.6% of your income from trades, you merely have to pay the corresponding amount in taxes.
Although paying your quarterly tax estimates may seem tedious, doing so can save a big tax burden come filing season. Additionally, paying your taxes quarterly makes it more convenient for you to do throughout the year for the IRS payments.
How Do I Figure Out and Pay My Quarterly Taxes?
If you have determined that you must pay taxes quarterly, Schedule C of Form 1040 should be your primary resource for calculating how much you owe.
Additionally, you might be eligible to file a Schedule C-EZ in its place if your net income is less than $5,000. You can determine your net income or loss with the use of both types.
The complete amount of self-employment tax you need to pay for the entire year will then be calculated using this number on your Form 1040. A quarterly tax payment calculator can be used to estimate it.
You and the several self-employed individuals must each estimate your income if you file a combined return. It is wise to consult a tax specialist to ensure that you are calculating the exact amount and abiding by IRS regulations.
Use Form 1040-ES to submit your quarterly taxes. To complete this form, you must have your annual tax return from the prior year. After completion, the worksheet on the form will indicate whether or not you need to file quarterly estimated tax.
You may: To send in your quarterly payments.
- Make the payment using the Electronic Federal Tax Payment System online.
- Certificates that must be mailed in and are on Form 1040 SE.
For example, you may have overpaid taxes after completing Forms 1040 or 1040-SR. The IRS may credit your account for the difference or apply whatever portion of the extra payment you choose to your estimated tax for the current year.
If you have a good sense of your tax obligations for the current tax year, making this choice will be easier. Any excess can be used for future taxes, either evaluated or projected, alleviating the load.
There are some ways to save on taxes when you’re self-employed. Tax deductions, tax credits, and certain contributions are eligible for write-offs. When you’re a freelancer, you can make IRS contributions that are tax-free.
But there is a retirement contributions limit. You can take the simplified home office deduction if you have a home office or dental premium tax deduction. You can write off the miles you drive for work but be aware that there is a difference between business miles vs commuting miles.
Conclusion
Working for yourself can give your professional life more freedom and adventure. On the other hand, it also brings specific monetary and tax requirements, such as determining the kind of taxes you must pay, the amount owed based on your occupation and income level, and making quarterly payments on time.
If you already utilize a quarterly tax payment calculator but still want additional assurance about your tax payments, seek advice from a tax professional.
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