Keeping Uncle Sam happy
January 28, 2017
Contributed by Independent Bank
Be prepared to make quarterly tax payments.
About 10% of Americans are self-employed. For most, self-employment provides freedom and the ability to follow one’s dreams. It also means paying the federal government its share by making quarterly tax payments on what you earn. See the IRS’s Estimated Taxes page for more information.
Here’s what you need to know:
Do you have to file estimated taxes? If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.
Know what form to file. You’ll estimate the amount you need to pay in income as well as Social Security and Medicare taxes. This is because you don’t have an employer withholding these for you. Use Form 1040-ES (Estimated Tax for Individuals) to figure your taxes.
Estimate your taxes. Form 1040-ES contains a worksheet to help you figure out if you are required to file quarterly estimated tax. You’ll need information from your prior year’s return to fill it out. The form also contains blank vouchers you can use to mail with your estimated tax payments. You can also use the Electronic Federal Tax Payment System (EFTPS) to make your payment.
Recalculate if necessary. If you’ve just become self-employed, you’ll need to guess at how much income you’ll earn and how much tax you’ll need to pay—and that could end up in an overpayment or underpayment. If your next quarter’s income is higher or lower than you thought it would be, simply complete another form 1040-ES to recalculate your payments for the next quarter.