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If You Are Self-Employed Come Up With a Strategy For Your Estimated Payments

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When you work for yourself as an entrepreneur, small business owner, investor, or freelancer, you earn income without necessarily withholding taxes from a paycheck.  What do you do?  Well, you could set yourself up on payroll, but that is expensive.  So, what is your next best option?

An easy rule of thumb is to tax last year’s tax return and split up the payments into four (4) equal quarterly payments.  Simply pay 100% of what you paid on last year’s tax return, divided by four, and you will fall within the IRS “safe harbor” and avoid any additional penalties.

If you didn’t owe any taxes or got a refund, you don’t need to worry about estimated payments this year!  But, be on the lookout if your income increases.  In that case, it is better not to be surprised at year’s end by a huge tax bill.

Another option is to use a program or app like TaxAct to take money out of your bank account through electronic funds withdrawal or to make payments through the Electronic Federal Tax Payment System (“EFTPS”).

Another important tip is that when big payments come in, you need to set aside a portion for estimated tax payments rather than simply spending the money on bills and the like.  There is an old adage that you should “pay yourself first.”  But, the cost of unpaid taxes in terms of penalties and interest is astronomical.  So, pay the IRS first, and pay yourself second.

Here is the schedule for estimated payments:

Payment Period

Due Date

January 1 – March 31

April 17

April 1 – May 31

June 15

June 1 – August 31

September 17

September 1 – December 31

January 15, 2019

Category: Tax

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