For tax season, I’m running some of my older posts pertaining to our book, The Money Book for Freelancers.*
If there’s one lesson we learned as we interviewed experts for our book, it’s this: “Pay your estimated taxes.” This is the single biggest mistake freelancers make. They don’t pay their estimated taxes, and come April 15th, they’re shocked by how much money they have to come up with. No one likes paying taxes, but if you pay a little now, and a little throughout the year, you’re in better shape to deal with the final number come April.
Estimated taxes in the USA are due four times a year, in April, June, September and January. The dates may seem a little arbitrary. After all, shouldn’t quarterly taxes be paid every three months?
Short answer: No. The IRS makes the rules, so they can basically run roughshod over the Gregorian Calendar. On June 15th, you owe Uncle Sam some portion of the income you earned between April 1 and May 31. You get a two-month period at that point but get a four-month period at the end of the year. Quarter 4 estimated taxes are due January 15th, based on income earned September 1 to December 31. The official IRS websites on these matters is here and here. If you think it will help you, go ahead and mark these periods and the due dates on your calendar.
Skipping estimated taxes until the end of the year is not really an option. That only sets you up for penalties and interest. How much do you need to pay? The only person who can tell you that is your tax preparer. Chances are, when you get your annual taxes done, your tax guru printed up some vouchers for you to use come estimated-tax time. If so, then you’re golden. Dig out those vouchers and send in what’s printed on the forms. One goes to the feds, the other to the state in which you reside.
If you didn’t have your taxes done by a tax preparer back in April, then oy, oy, oy. You are making us nuts. After we went and told you in our book how important it was to have someone like that!
Some tips for finding that person.
Our Tax Preparer Wish List
Someone who, duh, knows taxes. You don’t necessarily need an accountant (although depending on your business, you may) and accountants can be more expensive. What you do need is someone who specializes in taxes, and who works with a number of self-employed clients. Be sure to ask.
Someone who charges a reasonable, yearly fee, depending on the complexity of your return. If you work alone, are struggling to make a profit and have a pretty manageable return, you shouldn’t be paying the same rate as someone who has 10 employees and a net profit of $250K.
You absolutely, positively want someone you can contact throughout the year to ask about quarterly tax payments and retirement investments. This is key. At the end of each quarter, you should be able to send an email to your tax preparer, telling her how much money you’ve earned in that quarter, and asking her to calculate your estimated taxes. You should also ask her to send you the vouchers you’ll need to mail in your various payments. It’s her job to do this for you. If she is unwilling to do this, wants too much money to perform this task, or is too distracted with other things to get back to you, get another accountant. You deserve someone who takes your business seriously.
Yes, I am trying to post here more often. Thank you for noticing. If you want to sign up for my newsletter and claim your free ebook, go here. Thanks — Joseph D’Agnese