Freelancers, Make Sure to Pay Quarterly Taxes to Avoid IRS Fine
When you work as a standard employee, you fill out W4. Basically, it tells your employer how much to save in taxes every time you get paid. When you are a freelancer, this responsibility falls on you . Many freelancers don’t realize this, and it can come as an unpleasant surprise in April.
When you are a freelancer, you must pay the indicative taxes on a quarterly basis. Each quarter, you pay tax payments to the IRS based on your income. You can calculate your payments using a calculator like this , but if you want to avoid the penalty, you have to be very accurate . You must either pay 90% in tax for the current year (yes, even if you don’t know what it is yet) or 100% in last year’s tax return to avoid the estimated tax penalty (if you pay more than $ 150,000 per year, this is 110%.
I discussed this on my blog recently and several people stepped in to say they made the same mistake. This is something that you will eventually realize when you start freelancing, but it seems to be a common mistake for beginners.
You don’t want to learn the hard way – not only will you have to pay thousands of unpaid taxes in April, you will also have to pay fines in excess of that, and the amount will vary depending on your income. When you are just starting out, it can be a rude awakening. The IRS explains this in more detail at the link below.
Estimated taxes | IRS