How to plan for quarterly taxes when you’re a freelancer

Being self-employed takes a lot of work. Not only do you have to find clients who want to work with you and manage your business, but you also have to pay estimated taxes each quarter.

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Why do self-employed people have to file quarterly taxes?

Quarterly taxes for self-employed individuals are necessary because they don’t have an employer who is withholding taxes from their paycheck and submitting them to the IRS. If you’re self-employed and don’t pay quarterly taxes, you can be charged with a penalty from the IRS.

Keep track of your earnings

It’s essential for self-employed people to stay organized when it comes to their earnings. This is where OneDrive is your friend. Create a folder for each quarter in OneDrive. Then, add invoices, checks, or paystubs to the correct folder. You can also create an Excel sheet in OneDrive to list how much you made from each project. Using OneDrive to keep track of your earnings is beneficial because it’s cloud based, so you can access it from anywhere, whether it’s your accountant’s office or your home office.

Budget for your taxes

Freelancers have to be extra careful with how they spend their money. As a freelancer, you don’t want to overspend your paychecks as you’ll later owe some of your earnings to the IRS. To avoid owing the IRS money that you already spent, it’s wise to put aside 20-30% of your paycheck for taxes. You can put this money into a separate savings account to avoid spending it. Take advantage of these free budgeting Excel templates. These templates make it easy to track your monthly expenses and monitor how much you’re spending.

How to file quarterly taxes

To figure out how much estimated tax you owe, use Form 1040-ES. You can pay your taxes by mailing Form 1040-ES to the IRS, or you can pay online using the IRS website. Another option is to pay using the IRS2Go app. There’s also tax software available that you can use to file your taxes yourself. Filing without an accountant can help you save money. Make sure to do your research on different tax software platforms to find the right one for you. You may have to pay a small fee to use certain tax software platforms, although some are free. If you come across any issues while filing your quarterly taxes, you may need to find an accountant who can help you.

Avoiding tax penalties through the ‘safe harbor’ method

If you don’t pay the correct estimated tax amount, the IRS may charge you an underpayment penalty. You’ll receive a notification from the IRS if you have an underpayment penalty. You may be able to avoid tax penalties through the “safe harbor” method. If you owe the IRS less than $1,000 after subtracting from your withholding and credits, you can avoid the underpayment penalty. You can also pay at least 90% of the tax for the present year to avoid underpayment penalties, or you can pay 100% of the tax shown on last year’s return. You can choose whichever amount is smaller. Penalties may be waived if casualties, disasters, or other unusual circumstances cause you to miss your estimated payment. If you retired or became disabled during the year that you owed estimated taxes, the penalty may be waived, as long as the underpayment was not from intentional neglect.¹

When are quarterly taxes due?

t’s essential for self-employed individuals to pay their quarterly taxes on time. The IRS may charge a penalty for late taxes. For the 2023 tax year, quarterly taxes for self-employed workers are due on the following dates:

• 1^st quarter: Due April 18
• 2^nd quarter: Due June 15
• 3^rd quarter: Due September 15
• 4^th quarter: Due January 16, 2024

Always check the IRS website for updates regarding tax due dates. It’s a good idea to set reminders in your Outlook calendar to make sure you don’t miss your self-employed quarterly tax deadline.

Part of being a responsible freelancer is paying your quarterly taxes on time. Make the most of your freelancing earnings by learning how to create a budget when you have irregular income.

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