Tax Planning

Why Quarterly Tax Payments Matter for the Self-Employed

Why Quarterly Tax Payments Matter for the Self-Employed

Being self-employed offers so many advantages. Though the amount of scheduling flexibility you have will depend upon the type of work you do and the industry you’re in, you still get to make your own rules, choose who you want to (and not to) work with, and set your own path into the future. Unfortunately, with that freedom and independence, there also comes responsibility, and one of the most important of these is paying quarterly tax payments for yourself.

When you are an employee, whether you work for a mom-and-pop organization or a billion-dollar conglomerate, you receive a paycheck from which taxes are withheld and submitted to the government on your behalf. Employees have the freedom to “set it and forget it” when it comes to their tax obligation: When they are hired they fill out a form instructing their employer as to how many dependents they have and how they want their taxes managed, and then at the end of the year they receive a form that documents exactly how much they’ve earned and how much has been sent to the government in taxes. But when you’re self-employed you have to do that for yourself on a quarterly basis.

The process is fairly straightforward and can easily be overlooked — but that would be a mistake. Everybody that owes more than $1,000 per year is expected to estimate the amount that they are earning over the course of the year and submit taxes four times a year – and failure to do so could subject you to fines and penalties.

The due dates for the submission of these payments can shift slightly based on how the calendar falls, but for 2022 the payment for the first quarter (covering January 1-March 31’s earnings) is due on April 18th, with the second quarter (covering April 1-May 31st earnings) due on June 15th, the 3rd quarter (covering June 1-August 31 earnings) due on September 15th, and the fourth quarter (covering September 1-December 31 earnings) due on January 17th, 2023.

Though some people submit payments based entirely on real revenue, others whose earnings shift throughout the year submit payments on an annualized installment plan that evens out payments and still fulfills their obligation to the government and eliminates concerns about penalties. 

The easiest way to stay up-to-date and prepared for submitting quarterly estimated taxes is to keep track of your income, as well as your expenses, on a monthly basis and to set aside a percentage of your revenue as it’s received into a dedicated tax account. That way as the due date for your payment approaches, you’ll already have the cash on hand, and it will be easy to send it to the government. At the end of the tax year, you can reconcile the amount that you submitted with the amount that you actually owe based on your income and any write-offs or deductions to which you are entitled.

Submission of your Quarterly Estimated Taxes can be done via paper coupons and forms that are provided by both your state tax office and by the Internal Revenue Service, or you can submit them electronically, providing your bank account’s routing number or even paying via a credit card. Just make sure that you note the date that you submitted your payment and the amount that you set in. These records will be very important when it is time to file your income taxes.

If you are uncertain about how to calculate the amount that you owe, whether you are required to submit quarterly estimated taxes, or have any other questions about how to be sure that you are doing everything correctly and are in compliance with your state and federal tax requirements, contact a tax professional for an appointment.

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Spencer Wilson

Spencer Wilson

Spencer Wilson, EA is a tax preparer based in Long Beach, CA. Spencer Wilson Financial Management Services has been serving the Greater Los Angeles Area and Orange County since 2004. <br /> We began in the heart of Naples in Long Beach and we continue to work hard offering tax preparation and planning, business accounting and bookkeeping and payroll services . <br /> We have helped many different people and businesses succeed financially and take control over their finances.

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