Most people enjoy the benefit of having their taxes automatically deducted from their paycheck by their employer. However, Moolanomy notes that if you’re a freelancer, small business owner or self-employed, you may be required to pay quarterly estimated taxes.
The idea of filing taxes four times a year may sound unappealing, but, as a guest post on Budgets Are Sexy by small-business site Outright.com points out, neglecting to file quarterly can lead to fees at tax time in April.
So how do you figure out how much you owe each quarter? First, remember that these are estimated taxes. In order to come up with this estimate, the post at Budgets Are Sexy suggests that you look at last year’s total tax return and divide that number by four to find what you owe each quarter.
Even if your untaxed income grew substantially over the past year, you won’t incur any penalties and fees from the IRS as long as you pay the same amount you paid last year, points out a guest post on Etsy by Outright.com. This is thanks to what is known as the safe harbor rule. They also note that you only need to pay quarterly estimated taxes if you will owe more than $1,000 at the end of the year, after subtracting your withholding and refundable credits.
The IRS goes on to explain that if the 15th happens to fall on a weekend or legal holiday, the payment is due on the following regular business day.
Do you file quarterly estimated taxes? What’s your strategy for staying on top of these payments throughout the year?