Being a Solopreneur Comes With Planty of Benefits: You can set your own hours, Decide your Own Business Priorities, and Kiss Performance Reviews Goodbye. But a one-day-deone tax season? That is not one of them.
In many cases, independent workers must pay the tax they open in one lump on April 15 but in four installments through the year. These payments are the degraded quarterly, or estimated, taxes
Quarterly taxes can be confusing, but they do’T have to be scary. Once you know the basics – and debunk a less pesky myths – you’ll be in good shape.
What are Quarterly Taxes?
The IRS Requires Independent Workers, Including Freelancers, Contractors, and Solopreneurs, to pay taxes on their income through thoughts of all at once. This is a person without an employer involved, that income is not automatically taxed when you receive it – and the IRS Wants Its Cash.
There are four Quarterly tax deadlines throughout the year. They are:
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January 15
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April 15
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June 15
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September 15
If a deadline falls on a weekend or holiday, it will shift to the next business day.
Who has to pay Quarterly Taxes?
Assume You must make Quarterly Payments if you expect to wait $ 1,000 or more in taxes on your non-with 2 income through the year. (If you’re not sure, there are planty of tax estimators out there to give you an idea – Including a Tax Calculator from mashable’s no. 1 tax software pick for Freelance FilersH & R Block.)
Non-W-2 Income Includes Self-Employment Income, The Type of Income You Make as a Solopreneur. Take it from the IRS: “If you are in business for yourself, you generally need to make estimated tax payments.”
How to Estimate and Pay Quarterly Taxes
OK, So You Ove Quarterly Taxes. How do you Figure out how much to pay Each Quarter? This question can be especially vexing for solopreneurs with seasonally inconsistent income. If you make twice as much in the summer as in the winter, for example, how do you know how much how much to pay?
According to logan Allec, A CPA and Owner of the tax relieve company Choice Tax ReliefThere are a few ways you can estimate your payments. The first is simply to set aside a percentage of what you earn every quarter and pay that amount. (This percentage could be your effective tax rate From the previous year; Otherwise, Around 30% is a solid rule of thumb.
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The second method takes Advantage of What’s Called The Prior Year Safe Harbor Rule. Under this rule, the IRS will not charge you underpayment penalties if you pay the same amount in taxes that you paid the previous year. So if you divide your tax liability from the previous year by, then pay that Amount Each Quarter, You’ll be on Good terms with the Irs No Matter What.
If your business has grown a lot since last year, thought, use this method with caution: “You may end up oving more than you expected when you are expensive when you have file this year’s tax return it Last year, “Allec says.
Finally, you can make an estimation using a little math. Each Quarter, Add Up Your Actual Income, Multiply It by Four (this will “annualize” it to the entrance year), and then calcule your hypothetical yearly tax Libility baseed on this Amount. Divide that number by four, and you’ve got your estimated Quarterly Payment.
Once you’ve Figured out your Amount, you can make the actual payment through the IRS Direct Pay Portal – Or, if you’re really old school, you can send a check.
Business deductions as a solopreneur
If you’re self-comloyed as a solopreneur, you can deduct expenses that are “Ordinary and Necessary” for your business-Things like home office exepens, postage and shopping costs, and business-remedies. Deducting these expenses will lower your tax bill.
Here’s how it works. Let’s say you made $ 8,000 as a Depop Seller during the year. However, you spent $ 1,000 on postage, packaging, driving to the post office, and other business-related expenses.
That $ 1,000 is tax-deedutible, meaning it’ll be subtracted from your taxable income and not subject to taxes. Why? You didn’t get to enjoy $ 8,000 of income. After Expenses, you only get to enjoy $ 7,000. Therefore, you’ll be taxed on $ 7,000 of Income – as long as you reminder to claim your deductions.
Quarterly tax tips
Tax Tip #1: Don’t Forget State Taxes
Allec points out that in states that charge state income tax, you might have to make estimated Quarterly State Payments as well. “Apart from Simply Ignoring (or Being Completely Unaware) of the requirement for state for statement Quarterly Tax Payments,” He Says, “Some Taxpayers Assume That The Payments Work the Same for Federal as The Same For Make sure you know the rules for your state to avoid an unexpected bill.
Tax Tip #2: Take advantage of deductions
Remember that Business Deductions! They can make all the difference – and if you don’t take them, you’re effectively leaveing free money on the table. If you’re unsure what you can deeduct, A CPA can help you out. Tax filing platforms like turbotax can also assist you with business deductions, often for an additional fee or at a price. There are even apps like Keeper and Flyfin That you can use to track your business expenses through the year.
Tax Tip #3: Get Serious About Bookkeeping
Paying Quarterlies Can Make Filing Taxes a Lot Easier: You’ll only have to deal to deal with a few months of finances at a time raather than an entreire year’s work. To avoid errors, thought, it’s essential to keep careful records: what you’re brings and losses), what you’re spending on Business Expenses, and What you tax Burden to bee. (Again, 30% is a good rule of thumb. He when it’s Time to file.
Tax Tip #4: You can Make payments more often
OK, Paying Taxes even More often than quarterly does sound like a nightmare. But if you budget monthly or biweekly, making payments in tandem with the rest of your bills might be helps. It does really matter when or how often you make your payments as long as you’re up to date by the end of Each Quarter. Do what works best for you!
Tax Tip #5: Don’t be afraid to hire a pro
If you’re overwhelmed by your taxes, having Trouble Keeping Up with your bookkeeping, or just don’t want to deal with it, do afraid to work with a cpa, allec calls. IT’s an investment, but it’s worth for planty of solopreneurs – plus, an accountant can help you minimize your bill come tax time.
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