Estimated tax obligations
Many advantages come with working for yourself, like the freedom to establish your hours and never have to answer to a supervisor. However, it entails a few extra tax obligations, such as paying your taxes quarterly rather than every quarter like a W-2 employee would.
Who is required to pay quarterly taxes, for example, can be answered by continuing to read. When is the quarterly tax deadline?
Who has to submit quarterly taxes?
You will probably have to make anticipated tax payments every quarter if you are a self-employed person or small business owner. Typically, if you perform the following types of work:
an unaffiliated contractor
a lone trader
a participant in a partnership that runs a firm, such as an LLC
someone who owns and operates their own business, even part-time
Who is liable for paying estimated taxes?
You must pay taxes when you get them under the IRS’s pay-as-you-go income tax scheme. If you haven’t paid enough income taxes through withholding or making quarterly estimated payments, it enforces this by assessing underpayment penalties. In addition, late fees are assessed even if you receive a refund.
Many criteria are used by the IRS to determine whether you must submit quarterly estimated tax payments:
you anticipate owing more than $1,000 when you file your return after deducting withholding and tax credits, or
You anticipate that your tax credits and withholding will be less than:
90% of your current tax year’s expected tax obligation
100% of the tax liability for the prior year, assuming it includes the entire calendar year.
They are frequently known as safe harbour laws. If your adjusted gross income surpasses $150,000 ($75,000 if you’re married and file separately), the 100% threshold rises to 110%.
Those who make at least two-thirds of their income through farming or fishing are exempt from this rule. It is necessary to pay either 100% of your past year’s taxes or two-thirds of your current year’s taxes. Also, there is just one deadline for paying anticipated taxes: January 15 of the following year. Moreover, anticipated tax payments are not necessary if you file and pay in full by March 1.
You may avoid the financial hardship you might experience during tax season by paying your taxes quarterly. Paying your account in quarterly payments might be simpler than paying it all at once, particularly if you overestimated the amount of taxes you owe.
How to make quarterly tax payments
You can use the Electronic Federal Tax Payment System to submit your quarterly payments once you’ve calculated them.
The IRS also provides paper forms on which you can make payments.
You’ll pay the remaining taxes that weren’t covered by your quarterly payments when you submit your yearly tax return.
After filing Forms 1040 or 1040-SR and revealing an overpayment of tax, you also have other alternatives. Instead of receiving a refund, you can use all or a portion of your overpayment to reduce your anticipated tax for the current tax year.
When calculating your estimated tax payments for the current tax year, take this sum into account. During the first quarter of the current tax year, the overpayment that was applied to your anticipated taxes can be regarded as a payment made before the April deadline.
You may calculate your estimated quarterly payments for the upcoming tax year using your new total annual income. To estimate your quarterly payments, you may also track your earnings, outgoings, and deductions using software like QuickBooks Self-Employed.
Work with a tax professional who is familiar with freelancers and independent contractors when you use TurboTax Live Full Service Self-Employed. With the help of TurboTax Self-Employed, you may also file your self-employed taxes independently. We’ll track down every industry-specific deduction you’re eligible for and secure every cent you’re due.
