If you are self-employed, it’s vital to understand what your tax obligations are up front rather than waiting until you file. Otherwise, you may find yourself facing penalties and/or fees that you could have avoided.
Estimated Quarterly Tax
Perhaps the biggest consideration for self-employed taxpayers is the estimated quarterly tax you will owe throughout the year. This is tax you are obligated to pay on your income every quarter. The term “estimated” is used because the exact amount of tax due may differ when your yearly income is all accounted for.
Estimated quarterly tax is not unique to self-employed taxpayers. Every taxpayer must pay taxes throughout the year. The main difference is that if you’re employed by someone else, your employer takes care of withholding taxes and paying them to the government on your behalf. On the other hand, if you’re self-employed, you have to complete this process on your own.
When Do I Pay?
Typically, estimated quarterly taxes are due the month after the quarter ends. The IRS provides this general schedule:
- First quarter (January 1-March 31): Estimated taxes are due April 15.
- Second quarter (April 1-May 31): Estimated taxes are due June 15.
- Third quarter (June 1-August 31): Estimated taxes are due September 15.
- Fourth Quarter (September 1-December 31): Estimated taxes are due January 15.
More information, including any changes or adjustments to these dates, can be found on the IRS website.
Avoid Penalties and Fees
Paying your estimated taxes on time is important in terms of your standing with the IRS. If you’re late on your quarterly payments or you underpay, you may face penalties and/or fees. These will still be applied even if you end up being owed a refund overall at the end of the year.
To ensure that you’re well informed about your position as a self-employed taxpayer, it can be helpful to work with a certified tax professional for tax preparation and filing. The team at Taxation Solutions, Inc. is available in Indianapolis to help you understand and plan for your tax obligations throughout the year. Call us today!