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Sunday, February 16, 2020

Freelancers Who Pay Estimated Taxes to the IRS, Here's a Tip For You

NOTE: Let me state up front that I am a sole proprietor. So I'm working from that experience. Regardless, for all business types, consult your accountant or financial advisor or attorney.

If you are a freelancer who pays quarterly estimated tax payments to the IRS, we all pretty well remember the dates associated with those four IRS quarters (not to be confused with what accountants may deem as the standard quarters of any calendar year, BTW).

These IRS quarters are usually on (or after in some years) the fifteenth day of April, June, September, and January of the following calendar year. See IRS Form 1040-ES for each tax year to confirm.

Per the IRS.gov website (found at https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2), a chart is provided of actual deadlines for 2020 estimated taxes. Although "2020" is not specifically stated, in the footnote at the bottom, it notes "Page Last Reviewed or Updated: 25-Nov-2019." And I've checked my 2020 calendar to confirm all these dates fall on weekdays (no weekends).

When to Pay Estimated Tax


Payment Period Due Date
January 1 – March 31 April 15
April 1 – May 31 June 15
June 1 – August 31 September 15
September 1 – December 31 January 15* of the following year. *See January payment in Chapter 2 of Publication 505, Tax Withholding and Estimated Tax

But did you know that you can make multiple payments toward each of the four quarterly deadlines?

Per the IRS.gov website again (found at https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes), here's an excerpt relevant to this discussion, but you should particularly read the part I've bolded therein:

When To Pay Estimated Taxes

For estimated tax purposes, the year is divided into four payment periods. You may send estimated tax payments with Form 1040-ES by mail, or you can pay online, by phone or from your mobile device using the IRS2Go app. Visit IRS.gov/payments to view all the options. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax.
Using the Electronic Federal Tax Payment System (EFTPS) is the easiest way for individuals as well as businesses to pay federal taxes. Make ALL of your federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments using EFTPS. If it’s easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you’ve paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments. [Emphasis added.]
Granted, I would like to hold on to my money as long as possible to cover any surprise expenses that may come. However, I have to balance that mind-set with the reality of paying a huge (IMO) chunk of money to the IRS quarterly to avoid paying an even bigger wad come income tax time.

Obviously I'll make those four IRS deadlines for quarterly payments/income tax payments. But for the other eight months of the year? Yeah. I think I will make a monthly payment. Both my bank and my online payment system give me monthly earnings calculations, so it's easy to then apply my 15.3% in self-employment taxes (adding in a guesstimate to cover actual income taxes), to arrive at a relevant monthly figure that I owe the IRS. I'll tweak each month accordingly, especially around those four tax-time months.

Now if you are making the big bucks, this may not work for you. Especially when you can earn some major interest on your own money in the meantime. I get that. Then wait to the last minute to fork over that IRS payment. But me? I'm making pennies on my dollars that sit in plain old checking and savings accounts. So better for me to send that money earlier to the IRS rather than maybe spend it on splurges at the grocery store. In my financial world, if it's in my checking account, my net balance (taking into account the pending bills to be paid), seems like free money to me. Knowing this about me, I can't let that tax money end up in my checking account. :)

Just remember. Freelancers, whether poor or rich, need a financial plan. If yours is to avoid credit card debt or to set up an emergency fund with six months' worth of living expenses therein, you must figure that out for yourself, based on your particular circumstances.

Help stop the worry by starting an emergency fund, paying in estimated taxes more often, even meditating and deep breathing and voicing your gratitude and exercising and sunbathing and forest bathing and reading and journaling and writing and whatever else adds more joy to your life.

Overall, be kind to yourself and others. Amen.

Welcome to My World, Where Every Day Is a Saturday

Denise Barker, Author, Blogger, Copy Editor
Books that Build Character(s)


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