Man, selling online and freelancing is awesome, isn"t it? You get to set your own hours, don"t answer to anyone, plusyou don"t have to get mad at someone because you clearly havea sign marked "Bathroom for Customers Only" but theyused it anyway. Some days it"s tough to think of reasons to be upset aboutyour life. That is, until quarterly estimated taxes come around. Day ruined. |
If you don"t know what quarterly estimated taxes (QETs) are,then you"re either new or in for a rude awakening . See, the United States has what is known as a"pay-as-you-go" income tax. If you have a regular W-2job, then you"ll lament over those taxes taken out of everycheck. But the self-employed truly have to do everything themselves– even take taxes out of their own paychecks. For thisreason, every few months self-employed people are required to sendin a payment to Uncle Sam.
And you have to figure out the amountfor yourself and send it in on your own. If you don"t, you"ll be in for a huge surprise comeApril! But don"t worry – if this is the first you"veheard of these things, we"re here to help. Read on for thewhat, when, and how of these accursed tax payments! What are quarterly estimated taxes? QETs are certainly a pain, but they do make some sort of sense. Ifyou worked at an office, you would have your taxes taken out fromeach paycheck. Your individual sales through your online store orjobs you do for your freelance business don"t have any taxestaken out.
However, you still owe taxes to the government! So every quarteryou have to dip into your accounts and send a percentage out. Ifyou don"t, you owe even more during tax time in April asyou"ll be hit with fees for failing to "pay as yougo." When are quarterly estimated taxes due? QETs are quarterly payments, so once every few months they"llsneak up and tap you on the shoulder. However, if you know what thedates are beforehand you"ll be way more prepared. Quarter 1 just passed in April; your first quarterly payment wasdue the same day your federal taxes were due. The remaining threedates for the business year are: Q2: June 15, 2012 (flying up soon!) Q3: September 17, 2012 Q4: January 15, 2013 Then the fun starts all over again in April.
If you haven"tstarted on your Q2 taxes, it"s definitely time to at leaststart thinking about it! (EDITOR"S NOTE: June"s payment is the worst cuz it hitsyou so quickly after the 1st one of the year in April! I hateit…) How do I calculate quarterly estimated taxes owed… and paythe darn things? If you don"t know what to do, though, it"s difficult towrap your mind around sending a payment to Uncle Sam in the middleof the year. How in the world do you figure out what you owe,anyway? Where do you send it when you do figure it out? First of all, just like your federal taxes in April, you"llwant to get everything in order. Papers scattered around your office just won"t cut it! Ifyou don"t have a good filing system in place, work on thatfirst. It may feel like you"re wasting time, but youdefinitely don"t want to miss a vital receipt or bill.
Now, have you ever done a tax form harder than a 1040EZ? If so, youalready know what to do. You"ve got to get an adjusted grossincome based on how much you made minus expenses. So that meansadding up every single receipt from every single sale or job, thentaking out everything it takes to keep you in business likematerials and bills. It may be a good idea to work off last year"s tax form. It can give you a better idea how much you"ve made over thelast year.
After you figure your amount of tax liability from thelast year, divide by four and you can get your quarterly payment! To send in your payment, pick up a copy of 1040ES, the tax formspecifically made for QETs, then send the completed form to your nearest IRS tax office . If you"d rather do it online, head over to the IRS" payment system . One of the benefits of using this system is you can set it up tomake automatic payments in the future. If this seems like too much of a headache (trust us, we know!), Outright.com offers a handy quarterly estimated taxes estimate. Import yourbank accounts, PayPal , and credit cards into your free Outright account, then head overto the Taxes tab to check out what you owe.
(Keep in mind wecan"t predict your tax credits – such as childcare orthe earned income credit – so our estimate will err on theside of paying more and keeping you out of trouble with the IRS.) DON'T MISS: You could buy a house for what these celebs spend forproperty taxes.
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