If you pay the right amount of taxes and you pay your taxes on time, you probably won’t have to pay a penalty. That’s the good news.
But how can you be sure you’re paying the right amount?
It’s easy enough for regular employees. Their employers are the ones responsible for withholding a specific amount of taxes, taken straight from each paycheck, that is designated by the employee on the W-4 (the form you fill out when you start a new job).
Plus, most employees have a regular income that can be counted on and, in short, is a sure thing.
Paying taxes if you’re self-employed
But what about the self-employed? How much tax should they pay? Anyone who has ever worked a side gig knows self-employed income is often sporadic and fluctuates.
The general rule is this: If you expect to owe $1,000 or more in taxes when you file, then you probably need to pay estimated tax. (Different rules apply for corporations.)
Paying as you go
The IRS tries to make it easy. They encourage taxpayers to “pay as they go, so they won’t owe.” In other words, self-employed workers will determine how much of their income to set aside for tax payments by estimating that amount. Then, they make a payment four times throughout the year.
Making quarterly payments
There are four payment periods, which means self-employed workers will be making quarterly payments. How much they pay depends on a few factors, including major life events such as a death in the family or divorce. Self-employed workers should also consider tax laws, which change frequently. It’s a good idea to reference the IRS website for guidance on this topic.
Completing Form 1040-ES
As a first step, self-employed workers can complete the worksheet portion of Form 1040-ES to figure the amounts of their estimated taxes. Estimated tax payment due dates are listed on this form, as well as a list of documents needed to figure the estimated tax. How and where to send payments is also detailed on this form.
Self-employed workers should be prepared to answer questions about their expected adjusted gross income, what portion of that is taxable, and credits and deductions. Having a prior year tax return is especially helpful while completing Form 1040-ES.
But taxpayers don’t have to go it alone.
Slaying your taxes with TaxSlayer
TaxSlayer has designed a Self-Employed package for freelancers and the self-employed that includes all forms, PDF and W-2 import, audit assistance, and priority support via phone, chat, and email. Not only that, but customers have a tax advisor in their corner, ready to assist and answer questions.