Managing taxes may feel like navigating a maze for business owners and freelancers. Unlike traditional employment which offers automatic tax withholding from paychecks, independent contractors must handle their tax obligations on their own. We recommend managing this by making quarterly estimated tax payments, advance payments made directly to the IRS on taxable income and can lower or eliminate a high tax bill at the start of each year. They are required to avoid underpayment penalties, which are applied if more than $1,000 is owed in taxes.

Estimated payments generally need to be made by individuals who are self-employed or receive income that does not have taxes withheld. This includes freelancers, independent contractors, small business owners, investors and rental property owners. They are due four times a year. If a due date falls on a weekend or holiday, the deadline is extended to the next business day. For 2024, the due dates are on or before:

• 1st Payment | April 15, 2024
• 2nd Payment | June 17, 2024
• 3rd Payment | September 16, 2024
• 4th Payment | January 15, 2025 (You can include the fourth payment with your 2024 tax return if you file by Jan 31, 2025)

How Are Quarterly Estimated Taxes Calculated?

Consulting with a tax professional can ensure precise calculations. However, the IRS provides Form 1040-ES, which includes worksheets to help calculate your estimated payment. This process includes:

1. Estimating your total annual income for the year, including earnings from all sources
2. Calculating your expected tax liability using the current year’s tax rates based on your projected income. Pro tip: Don’t forget to include self-employment tax if applicable.
3. Subtract credits and prepayments, such as taxes withheld from other sources and past refunds that have been applied to the current tax year.
4. Divide the remaining amount by four to determine your quarterly payments.

How to Make Quarterly Estimated Tax Payments

• Online | Use the IRS Direct Pay system or log into your Online Account.
• Mail | Send a check or money order for Form 1040-ES. Find the mailing address based on your state on the forms instructions (page 5).
• Phone | Make a payment over the phone by calling one of the debit or credit card service providers (page 4), or through the Electronic Federal Tax Payment System (EFTPS). To get more information about EFTPS or to enroll in EFTPS, visit EFTPS.gov or call 800-555-4477.

To get more information on maybe estimated tax payments, visit www.irs.gov/payments.

Conclusion

Managing quarterly estimated tax payments can help you avoid underpayment penalties, aid in managing cash flow and reduce stress during tax season. By understanding your tax obligations and staying proactive and informed, you can focus more on growing your business and less on worrying about tax issues. If you find the process overwhelming, consider consulting with a tax professional at Murtha & Flischel to receive personalized guidance.