I can’t believe we’re thisclose to June already! This year is just flying by! I felt like we just paid April’s taxes yesterday, but nope, there is that estimated quarterly taxes due date of June 17, 2013 staring at me on my white board. Poop.
Our Way of Handling Estimated Quarterly Taxes
There is an official way you can work your numbers and make sure to cover your butt from penalty fees by paying as little each quarter as possible. But that takes time without tax help and we don’t generally mind maybe overpaying a tiny bit compared to possibly underpaying by a ton. So we follow the secondary rule – as long as you pay in at least what you owed for last year’s taxes, then you won’t have any penalties even if you owe double in the upcoming year.
So we are taking what we owed in total in 2012, dividing that by four, and sending in that amount by each due date. For us, that comes to about $8000 each quarter (covering the employer’s part of taxes along with the regular part hurts, lol).
Making Sure We Have It
In order to send off $8000 four times this tax year, we make sure to religiously fund an account just for our taxes. We have a blog income account that receives all of our withdrawals from Paypal and pays us $4000 automatically every two weeks. From that $4000, $1250 is automatically moved over every two weeks to our tax account to cover ourselves there too. That means a minimum of $7500 is being placed in there every 3 months (more if there is a three paycheck month).
The key is that we treat our tax account like it isn’t even our money. We don’t touch it at all unless we are adding to the total, making withdrawals to send to the IRS, or making a one-time withdrawal after April’s taxes when we take out any extra that we ended up not needing to use for the year (our own personal tax refund, lol).
Covering Extra Money Too
If we ever make way more than we ended up paying ourselves AND our blog income account already has the padding amount we want ($20,000 is our goal right now), then we disburse the extra based on our priorities but take taxes into account first. For example, if we ever end a month at $21,000 after our last monthly paycheck, then we would send a third of that extra $1000 to our tax account and divide the rest up between our priorities like Roth IRA investments or the new car fund. That way our tax fund is always healthy enough for us to pay the quarterly amounts without dipping into the emergency fund.
So there you have it, the wonderful world of handling taxes when you are self-employed. 🙂
Do you do something similar (for all of the self-employed readers)? Or for my non-self employed, aren’t you glad you don’t have to worry about this? 😀
FYI: I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year. I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home. If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!). Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!