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You Don’t Have to Fear Estimated Quarterly Taxes

It’s that time again – the next payments for estimated quarterly taxes are due on September 16.  A few other people thinking about self-employment have asked me about how hard estimated quarterly taxes are to file, and I figured it was time to let everyone know that it’s really easy!  It’s just one little form.  The hardest part is parting with the check to give the IRS your money.

Seriously Simple

Okay, so here is the link to find the form you’ll need to fill out to include with your check.

2013 Form 1040-ES (OTC) – Internal Revenue Service

You’ll see a ton of info and even a worksheet to help you figure out how much to send in.  But if you want to keep it super simple, don’t freak out.  You can simply divide what you owed overall last year by 4, and then send in that amount every quarter.

If you end up owing more than you did last year, you can send in the remainder in April with no penalties since you paid 100% of what you owed the year before.  If you end up owing less than the previous year, you’ll get that refund in April.  Either way, it keeps things super simple during this year.

Here is the only part of the form that you really care about:

1040ES

Here is an example of a 1040ES. Just fill out this tiny bit of info and send it with your check. It’s that easy.

 Just Make Sure You Have the Money to Send

Okay, so now you know how simple it is to send the IRS their share every quarter.  The trick is remembering to save some cash for them as you go, right?

Make it easy on yourself.  We have all of our self-employment money deposited into one savings account and distribute it from there.  We simply transfer a little more than 30% of what we make into a different savings account that we use just to save up the taxes we may owe to the IRS.

Normally we end up paying 25%-30% of what we make, so we move a little more than that to side and forget it is there until we write the checks.  It’s still painful to send off thousands of dollars 3-4 times a year, but at least it is set aside for us to send.  Freaking out about rounding up tax money every 3 months would drive me insane.

And that’s all there is to estimated quarterly taxes.  Any questions that I didn’t cover?

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9 comments to You Don’t Have to Fear Estimated Quarterly Taxes

  • Estimated taxes are definitely no fun but they are necessary. There are lots of factors to take into account if you want to get it right, but if you have an accountant and send them your income statements (revenues and expenses) they’ll generally tell you how much to send in. Of course, there is a fee for that, but sometimes they’ll be able to help you with tax planning to save even more on your taxes :)

  • Great post! So many people have asked me about this, so I’ll have to send them here :)

  • I find it handy to pay estimated taxes electronically using EFTPS online (www.eftps.gov) for fed tax and webapp.ftb.ca.gov for state. Note that my state is California. You will need to find the appropriate web site for your state 540es payment. If you haven’t yet registered to use these sites, it may be too late for this quarter’s payment. I think I had to receive some sort of confirmation in the mail from EFTPS before I could use it.

  • @Lance, I am pro-CPA if you are low on time, but some time online and paying attention to tax forms generally leads to the same returns. We haven’t been impressed with a CPA yet (only tried 2 and now we do it ourselves).

    @Michelle, remind them that I didn’t cover state taxes (I live in Texas and forget that some states have income taxes).

    @Bryce, I didn’t know there was an electronic option, cool! Yeah, and I forget about state income taxes too (yay for one benefit of living in Texas, lol…sort of makes up for hurricane season, hahaha).

  • Thanks for writing this! Why not just pay annually instead of quarterly? I’ve got some learning to do!

  • @Todd, if you owe more than $1000 in April and you didn’t pay 100% of what you owed the year before over the year (quarterly payments), then you will also owe some fees for penalties for underpaying the IRS throughout the year.

    Specifically, you can avoid penalties in 3 ways:

    1. Owe less than $1,000 in tax at the end of the year
    2. Pay at least 90% of the tax due for the current year over quarterly payments
    3. Pay at least 100% of the amount you paid in taxes for the prior year with quarterly payments

    When you work a day job, your employer withholds part of your paycheck for taxes and sends it in quarterly for you. Quarterly estimated taxes is just what self-employed persons do since no one will do it for us. :-)

  • The very first year I owned my optometry practice, I didn’t pay any quarterlies. I was clueless and didn’t realize I was responsible for what the business had paid in the year before. I owed $20K at tax time and just about died. I have not made that mistake since, and I already sent my payment for this quarter.

  • @Kim, oh, I cringed at that! Sorry!

  • Stacie

    I’ve learned this the hard way this week. Filed an extension with my CPA for 2012 (did not owe any taxes previous years for my business since it was new). Just got back my 2012 return this month and owed a hefty amount for income / self employment tax. Now since we’re already 3 quarters into 2013 I owe the estimated amount for the first 3 quarters this year too; dang it….At least now I know, and I’m learning from my mistakes.