An estimated16 million Americans were self-employed in 2021. Quarterly tax planning comes with self-employment, freelancing, contracting, or owning a small business.
But what should you know about quarterly taxes if you’ve never paid them before? How do you pay quarterly taxes as a qualified taxpayer?
That’s what we’re here to look at today. Read on to find out more about 4 key things to know when preparing your quarterly taxes.
What are Quarterly Taxes?
Quarterly taxes are tax payments that self-employed workers pay throughout the year. It effectively splits up an estimated tax bill into four parts instead of having to pay it all at once.
Regular employees get taxes deducted from their payments for each paycheck. For self-employed workers, those deductions are paid out during the quarterly tax process. They’re essentially paying taxes every payday.
Who Pays Quarterly Taxes?
Whether you’re a gig worker, a small business owner, a freelancer, or another form of self-employed worker, you are required to pay quarterly taxes. If self-employment is your primary source of income, you pay quarterly taxes.
Now that we know what quarterly taxes are and who pays them, let’s look at the first tip for preparing quarterly taxes: the yearly time frame.
1. Knowing When to Pay
The first tax quarter of every year is typically between the first of January and March 31. Payments are often due mid- to late April.
The second quarter usually runs between April and May, while the third quarter runs from June to August. Quarter 4 is September through the end of the year, and taxes are due the January of the following year.
Knowing these time frames is crucial to keeping up with your payments. Have them jotted down, so you never miss a tax date.
2. Calculating Taxes
The IRS recommends filling out Form 1040-ESwith estimated payments. To get these payments, you need your taxable income, adjusted gross taxable income, and the amount you expect to owe based on that.
Divide the estimated amount of tax owed into four, and you’ve calculated your estimated tax payments! Having this ready is crucial to both your budget and for preparing your quarterly taxes.
3. Knowing How to File
Depending on the type of self-employed work you’re doing, you’ll most likely fill out a 1040-ES. You can file your taxes by phone, by mail, or through online services.
Familiarize yourself with online tax payment sites if you choose to go that route. If you’re unsure about how to file correctly, hire a business consultant to help you out!
4. Penalties for Failing to File
The IRS will charge interest on your tax bill as well as other fines and penalties for failing to file quarterly taxes. They’ll charge a small penalty once you pass the due date, which increases with every month you miss.
While you should preferably never miss your deadline, things can happen. It’s important you know what these penalties are so you’re prepared for situations where you might end up filing late.
Quarterly Tax Planning
Quarterly tax planning can be a little confusing for those who have never filed on a quarterly basis. Use this guide to help you file your quarterly taxes efficiently and without any sweat!
Looking for valuable consultants to help with tax planning? Contact us today,and we’ll get you started on a solution right away!
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of our clients’ same issues.