Self-employment is becoming increasingly popular these days, and it’s easy to understand why. Being your own boss allows the freedom to make your own rules and work on a flexible schedule. However, all this freedom comes with a few extra hassles, including the responsibility to file quarterly taxes.
This can be a bit overwhelming, especially if you’re accustomed to having an employer withhold income taxes on your behalf. Read on below to learn what quarterly taxes are, who needs to pay them, and how to calculate estimated tax payments so you can be prepared for all of the tax deadline dates 2020 throws at you.
What Are Quarterly Taxes?
While most U.S. citizens have taxes taken out of their paychecks all year long, as a self-employed individual, you’ll likely be expected to pay IRS quarterly taxes on your own, every three months. In addition to the standard tax for your income bracket, you will also owe a self-employment tax which goes towards Medicare and Social Security.
Filing taxes four times as often as most people can be a hassle to keep up with, but it’s worth the effort. For one thing, paying in installments throughout the year takes a much lighter toll on your wallet than seeing all your yearly taxes subtracted in April.
Furthermore, if you are required to pay quarterly taxes and fail to keep up with the IRS’s schedule, you’ll owe penalty payments and interest when April rolls around.
Do I Need to Pay Quarterly Taxes?
Whether you’re a business owner, an independent contractor, freelancer, landlord, or even a recipient of alimony or prize money, any income you gain that isn’t already taxed by an employer is tax deductible. If the amount you would owe in taxes is $1000 or more, you will need to pay every quarter. The one exception to this rule is if you spent all 12 months of the previous tax year in the U.S. and did not owe any money towards taxes that year.
Of course, if you have no idea how much you’ll owe this year, it can be difficult to guess whether or not quarterly tax payments are necessary. The section below will help you figure out a basic estimate of what to deduct from your bank account.
How Much Do I Owe In Estimated Taxes?
To calculate how much you owe the IRS, you’ll need to add up your adjusted gross income, taxable income, taxes, deductions, and credits. Self-employment taxes typically constitute a little over 15% of your net income. Once you have determined how much money you’ll owe for the year, divide that amount by four to reach your estimated taxes for each quarter. If you’re not a math whiz, Form 1040-ES can help ease some of the tax calculation processes. If this isn’t your first year in business, remembering what you owed in previous years can also be a helpful guideline.
When gauging your federal estimated taxes, it’s critical to be as accurate as possible to avoid penalties. When in doubt, it is always better to overpay than to underpay, as you will receive a tax refund for any excessive payments made.
How can I automate my quarterly tax savings?
Everlance’s new Tax Vault service automatically puts a portion of your self-employed income into an FDIC insured account. The default rate is 10% but can be adjusted through its settings, if you want to put aside more or less. You can withdraw your funds at any time, and you know the funds are there waiting when it’s time to make your tax payments. You can learn more about Tax Vault here. A limited number of users can start saving with Tax Vault for free, so download the app to get on the waitlist now!
Due Dates for Quarterly Taxes 2020
With everything that has been going on throughout with the United States and the world due to Covid-19, the IRS has pushed the federal tax deadline for 2020 back from April 15th to July 15th. It is still unclear whether or not the other dates will be adjusted. Be sure to mark these 2020 days on your calendar:
- July 15, 2020: 1st 2020 quarterly payment due (adjusted due to Coronavirus)
- June 15, 2020: 2nd 2020 quarterly payment due
- September 15, 2020: 3rd 2020 quarterly payment Due
- January 15, 2021: 4th 2020 quarterly payment due
What Forms Should I Use for Quarterly Taxes?
If you’re a contractor or freelancer, you’ll receive a Form 1099 from each client that has paid you $600 or more. You may need to fill out additional paperwork if you file under certain classifications of business entities.
If you’re registered as a sole proprietor, LLC, S Corp shareholder, or self-employed individual, you’ll need to use a Form 1040-ES. For other types of entities, a Form 1120-W is required.
How Can I Make My Payments for Quarterly Taxes?
There are multiple options for quarterly payment methods, so you can choose the way that works best for you from the following:
- Online, using the IRS website
- By phone, by registering for the Electronic Federal Tax Payment System or using an IRS service provider listed on your Form 1040-ES
- By mobile device, using the IRS2Go app
- By cash, check, or money order, either through snail mail to the address listed on your form 1040-ES or in person at an IRS office (Note that these forms of payment are less secure than taking advantage of modern technology and therefore not recommended)
The Bottom Line For Self-employed Taxes
A lot of work goes into filing quarterly taxes, but staying up to date on your finances with accurate, organized records saves you time and money. Keeping track of your business mileage and expenses on Everlance’s user-friendly dashboard is quick and easy. Just kick back, relax, and download your mileage and expense reports each quarter to make paying your quarterly taxes as stress-free as possible.