Four simple and pain-free ways to stay on top of your quarterly taxes
Although working for yourself comes with a whole host of benefits, staying on top of your quarterly tax payments isn’t one of them.
Taxes, in general, can be a complicated process for self-employed contractors, but there are several ways you can make this task less intimidating.
Quarterly taxes overview
One of the first hurdles of paying your quarterly taxes is understanding if you need to do it in the first place. If you’re an independent contractor, sole proprietor, or a single-member LLC owner who expects to own more than $1,000 in taxes this year, you need to file quarterly taxes.
While the IRS may contact you if you reach that threshold, they’re likely to do so after you owe back taxes. Since contractors have to pay both self-employment tax (15.3%) and income tax (12-37%), you’ll be hit with a hefty audit that could cause financial harm to your business.
How to keep up with your quarterly tax payments
Once you confirm that you have to pay your taxes quarterly, you can start planning for your next quarterly tax payments and avoid the extra stress of paying your dues last minute.
1) Estimate what you owe using a quarterly tax calculator
As a rule, independent contractors should keep 25-30% of their income in a separate savings account. This ensures that you have enough money to pay your year-end taxes. However, with quarterly taxes, you have to estimate what you owe, which can be tricky if you don’t know how.
By using a quarterly tax calculator, you don’t have to mess around with equations that are prone to human error. Still, you’ll need to know how much you made to estimate your taxes, meaning you’ll have to perform some minimal bookkeeping duties to avoid underpaying the IRS.
2) Keep your tax records organized and readily available
We understand that monthly bookkeeping can be a drag, but you have to know what you made during each payment period to settle up what you owe to the IRS. Some payment periods are longer than others, so you won’t have three to four months’ worth of paperwork every single time.
To stay diligent with your business bookkeeping, place all of your invoices, receipts, and known business write-offs into a folder on your desktop. Populate an Excel spreadsheet with numbers you need quick access to, like your income and deductions, so you can easily file your taxes.
3) Establish a tax-paying schedule and stick with it
Unless the filing due date lands on the weekend, the following due dates should stay the same:
- April 15th (for payment period January 1st to March 31st)
- June 15th (for payment period April 1st to May 31st)
- September 15th (for payment period June 1st to August 31st)
- January 17th of the following year (for payment period September 1st to December 31st)
The easiest way to set up your schedule is by ensuring your bookkeeping for each month is completed by the first week of the next. That way, you’ll easily meet every due date.
4) Hire a bookkeeper, accountant, or tax consultant
Hiring a bookkeeper, accountant, or tax consultant may be exactly what you need to file your taxes on time. It’s hard to force yourself to do something when your head and heart aren’t in it, so if you’ve managed to scale to the point where you can afford to outsource your taxes, do it.
Of course, you’ll still need to keep track of your expenses and send your invoices, deductions, and other documents to your accountant, but you won’t need to file them yourself. This can put a lot of pressure off of you and allow you to focus more on other parts of your business.
Photo by Susanna Marsiglia