Self-Employed? Don’t Forget About the Estimated Tax Deadline
Self-employment can be a very fulfilling career choice. However, although you have more control over your working hours and income, you also have more responsibility when it comes to taxes. As a self-employed taxpayer, it is important to stay up to date with tax deadlines, especially if you have to pay quarterly estimated taxes; otherwise, you may face heavy penalties from the IRS.
Who Must Pay Estimated Taxes?
In the United States, the government expects to receive most of your taxes throughout the year. This goes for all taxpayers, including the self-employed. Employees who receive a W-2 normally do not have to worry about this too much, as their employer usually automatically withholds a certain amount of taxes from each paycheck based on how they filled out their W-4 form.
However, those who are self-employed, freelancers, or independent contractors usually don’t have taxes withheld from their pay throughout the year, therefore they must instead pay quarterly estimated taxes. If you are likely to owe $1,000 or more annually for your taxes, and your withholding and refundable tax credits will cover less than 90% of your tax liability for the current tax year (100% of your tax liability for the previous year–whichever is smaller), you are expected to pay quarterly estimated taxes throughout the year.
When are Estimated Tax Payments Due?
- 2024 1st quarter tax deadline: April 15th, 2024 (For income received from January 1st through March 31st.)
- 2024 2nd quarter tax deadline: June 15th, 2024 (For income received from April 1st through May 31st.)
- 2024 3rd quarter tax deadline: September 15th, 2024 (For income received from June 1st through August 31st.)
- 2024 4th quarter tax deadline: January 18th, 2025 (For income received from September 1st through December 31st.)
Most years, the quarterly estimated tax deadlines are April, June, September, and January. The first quarterly estimated tax deadline in 2024 was April 15th, and the final quarterly estimated tax deadline on January 18th, 2025. If you choose to file your tax return in January, you do not have to make your final quarterly tax payment on January 18th; instead, you can pay the entire balance due with your return.
If the deadline falls on a weekend or holiday, then the due date is the following weekday. Remember these dates and do not miss any deadlines. Missing quarterly payments result in penalties and interest, but waiting until the end of the year to file and pay taxes may result in other financial issues if you had saved enough funds.
How to Calculate and Pay Estimated Tax
Calculating your estimated tax involves calculating your expected income, taxable income, taxes paid, and any deductions or credits for the tax year. Using your income, credits, and deductions from the prior year may help give you a reference in calculating the current year.
Ensure to accurately track your income throughout the year and keep records of payments. It may be easier to use software to help make tracking and calculating your income more manageable. Don’t forget to keep track of your business expenses to be able to calculate your estimated taxes.
To calculate your quarterly estimated taxes, use form 1040-ES. This form gives you instructions on calculating your quarterly estimated taxes and the payment methods you can use. You can pay your estimated taxes by check, cash, money order, debit card, credit card, or online through the Electronic Federal Tax Payment System (EFTPS), which the IRS deems to be the easiest way to make federal tax payments.
It is important to estimate your income as accurately as possible. You don’t want to have to owe the IRS a substantial amount come tax season, but you also don’t want to overpay and give the IRS an interest-free loan for the year.
If you calculate your income as too high or too low, all you have to do is complete another 1040-ES sheet the next quarter to recalculate your estimated tax.
Penalty for Underpaying Estimated Tax
If you do not pay enough tax throughout the year, you may face underpayment penalties. If you owe less than $1,000, will have paid at least 90% of the tax for the current year, or 100% of the tax shown on your return for the prior year, you may be able to avoid penalties.
They may also wave the penalty if you were unable to make payments due to unusual circumstances, or if you retired or became disabled during the tax year, and the underpayment was due to reasonable cause as opposed to neglect.
Tips for Paying Taxes When Self Employed
- Unless you live in a state with no income tax, you may also owe state estimated taxes as well, so be sure to check with your state tax agency for up-to-date information.
- Be sure to record all of your estimated tax payments, as you will need to use these amounts when you file your taxes.
- If you don’t plan to have income until later in the year, you don’t have to pay estimated taxes until you do.
- If you’re not prepared to pay your taxes, coming up with the money to make quarterly estimated tax payments may be difficult. Consider setting money aside in a savings account every time you get paid solely to pay taxes.
- The IRS pays little attention to your quarterly payments until you file your tax return; however, that does not mean you should not be keeping up with your payments. You will still be hit with a penalty if you underpaid your quarterly taxes. Likewise, if you overpay one quarter, you will not get that money back until you file your tax return the following year.
- If you overpay one quarter, depending on the amount, you may be able to avoid paying the next quarter. Quarterly minimum payments are cumulative, so, in this circumstance, if you paid enough in the first quarter, you won’t be penalized for not sending a second-quarter payment.
Preparing for Estimated Tax Deadline
If you are self-employed, it is especially important to keep track of your income and expenses to pay your quarterly estimated taxes on time. Know the deadlines and accurately calculate how much you may owe, or else you may end up overpaying or facing penalties for underpaying your taxes.
If you’re self-employed, FormPros can help you easily create a number of useful forms and tools, such as your paystub or 2553 forms to help you accurately keep track of your income and help your prepare your taxes.