This guest post is brought to you by Outright.com – the easiest way to manage your small business finances and experience a less taxing tax time!
Hey, we’ve all been there. Selling online or starting up your own freelance business takes a lot of work and thought. While you’re busying making money and trying to survive it’s easy to forget things. One of those things that’s super easy to forget but super important to remember is your upcoming quarterly tax payment!
“Wait, what the heck are quarterly tax payments!?” shout some of you. Like we said, it’s easy to get wrapped up in all the selling and product making and advertising that you forget the nitty-gritty parts. We thought we would take a second to clarify exactly what you need to know about quarterly taxes and what to do about them.
What at these “Quarterly Estimated Taxes” you speak of?
Quarterly estimated taxes are taxes independent sellers or freelancers pay every, well, quarter. Basically, if you make money on your own and don’t actually work for a company, you need to pay quarterly taxes.
The U.S. has what is called “pay as you go” income taxes. You’re supposed to pay into the system as you get paid, which is why W-2 employees see federal and state taxes drawn out of each paycheck. But because you’re not employed by a company, you don’t get taxes automatically deducted out of your paycheck. However, you still need to pay in to Uncle Sam. So every few months you send in a check for how much you would’ve paid had you been a full-time employee somewhere. Pretty simple, right?
When do I pay Quarterly Estimated Taxes?
Quarterly estimated taxes aren’t paid on your own schedule – the IRS has set dates you file and send in your money. One just passed, actually; Quarter 1 taxes were due the same day your federal taxes were due, April 17th.
The others are:
- Quarter 2: June 15, 2012
- Quarter 3: September 17, 2012
- Quarter 4: January 15, 2013
Just like federal taxes, you also have to pay state quarterly estimated taxes (if your state has income tax). Make sure you save a little so you can cover these payments or you’ll be paying out the nose come next tax day.
How do I pay Quarterly Estimated Taxes?
The elephant in the room when figuring quarterly estimated taxes is how exactly you figure out what you owe. After all, you don’t have a set amount (like a salary) to calculate taxes from, so how do you do it? Do you just guess?
This is where a good filing system comes in handy. If you have tracked all of your business income and expenses your life at quarterly estimated tax time will be that much easier.
To pay your estimated quarterly taxes you can do one of two things. You can fill out a form 1040-ES and send it to the IRS address nearest you, or you can file electronically using the Electronic Federal Tax Payment System (EFTPS). You have to enroll in the EFTPS before you use it, but after you are all set up, you can use it like a automatic debit for tax payments if you wish, and can even pay taxes over the phone if you are not comfortable giving out your information over the internet.
It’s usually a good idea to start your calculations based off your taxes paid last year. At the very least you can get your adjusted gross income, credits, and deductions from last year as a jumping off point. From there you can figure out how much you made during the year and make a payment based off these calculations.
If this is too big a pain – and believe me, we feel you – Outright.com offers a handy quarterly estimated taxes estimate. Import your bank accounts, PayPal, and credit cards into your free Outright account, then head over to the Taxes tab to check out what you owe. (Keep in mind we can’t predict your tax credits – such as childcare or the earned income credit – so our estimate will err on the side of paying more and keeping you out of trouble with the IRS.)