Taxpayers who are self-employed must pay at least 90% of their taxes in quarterly installments. Since each person has different expenses, these quarterly payments are referred to as “estimated taxes” because you never know exactly how much money you will owe in taxes for the entire year. The estimated tax payments, or quarterly taxes that you have already paid can be reported when you ultimately file your annual federal tax return.
Gig workers and self-employed people typically have to pay taxes quarterly and are required to pay the self employment tax, which gets recorded on Schedule SE. You might already be paying enough taxes for the year, though, depending on the situation. Listed below are some scenarios in which you don’t.
First, assuming that you earn relatively little money from freelancing and are a W-2 employee with taxes already withheld for you and a regular tax refund, you might not need to pay quarterly taxes.
Additionally, if you have previously made the following payments:
-90% of the current year’s expected tax debt
-100% of the tax debt detailed in your prior-year return.
Your tax obligation is virtually entirely met in such circumstances. However, those who use their tax refund from the prior year to pay their taxes for the current year are more likely to do this.
Avoiding penalties is one of the main justifications for paying anticipated taxes. Penalties may apply if quarterly taxes are not paid on time. Even if you are entitled to a refund when you complete your tax return, the IRS may impose a penalty for late or insufficient payments so it’s best to avoid tax penalties.
These sanctions may also be severe.
If you don’t make the whole amount due on your anticipated tax payments, the IRS may slam you with an underpayment penalty.
If you paid a minimum of 90% of the tax for the current tax year or 100% of the tax stated on the return for the prior year, or if your tax liability is less than $1,000 after withholdings and credits, you can avoid this penalty. The current penalty rate levied by the IRS is 3%.
You can still be fined if you don’t send in your quarterly payments on time in addition to the underpayment penalty. The quarterly tax filing deadlines are strictly enforced by the IRS. Therefore, be sure to submit your predicted tax payments on time.
Four times a year, the quarterly tax deadlines arrive on schedule, but even for seasoned freelancers, remembering the precise date can be challenging. The dates for filing quarterly taxes for the upcoming year are shown in the following table:
Period of Payment Due Date
September 1, 2021, to December 31, 2021 January 18, 2022, to March 31, 2022 April 18, 2022, to May 31, 2022 June 15, 2022, to August 31, 2022 September 15, 2022, to December 31, 2022, to January 16, 2023
You may make a payment on the following business day if any of the aforementioned due dates in a given year fall on a Saturday, Sunday, or holiday. Additionally, you can make the remaining tax payments for the prior year if you file your taxes by January 31st.
If you are assessed a penalty, you can submit Form 843 to request a waiver.
Quarterly tax filing doesn’t always have to be difficult. By taking tax deductions, you can increase your savings. The majority of freelancers overlook itemized deductions like home office costs, mortgage payments, charitable contributions, and more. The following list includes some of the typical tax deductions available to independent contractors:
Rent: You may deduct any rent you pay for a property used to operate your business.
Utilities, such as heat, electricity, gas, water, and sewage, are deductible on your business tax return.
Home Office: If you work from home and use a home office as your primary place of work, you may be able to write off the taxes related to your home office.
Marketing and advertising costs are tax deductible if they are connected to your business.
Contract Work: Any wages received for contract work are deductible from your taxes.
Office supplies: You can write off the cost of any equipment or supplies you need to run your firm.
Due to their unpredictable revenue, freelancers often struggle to come up with the money needed to pay their quarterly taxes. Therefore, it’s crucial to prepare for it and set away the debt you owe.
Your anticipated adjusted gross income, taxable income, taxes, deductions, and credits for the year are some of the factors you must take into account when figuring out your estimated taxes. It is usually preferable to rely on math rather than estimation when it comes to paying your taxes.
Therefore, if you are a freelancer, you can calculate your anticipated tax using the IRS’ Estimated Tax Worksheet, which is included in Form 1040-ES. You can use the form to determine your annual tax obligation, divide it into four equal payments before the due dates, and file your taxes.
Utilize applications like FlyFin if the math seems too challenging. A.I. and CPA support the quarterly tax calculator offered by Flyfin.
Use this calculator to determine your quarterly tax: