How Much Money Should Freelancers Set Aside to Avoid Tax Fines
Freelancers, you probably know you have to pay estimated taxes every quarter (if not, here’s an example ). But what if your grades are slightly understated? Forbes explains the specific requirements and rules for paying these taxes.
There are online calculators to help you estimate your taxes , but to avoid any penalties, Forbes explains how accurate your estimates should be:
This is where what is called Safe Harbor Law comes into play. Simply put, you should either count on 90% of your tax for the current year (even if you probably don’t know that number in advance) or 100% of the tax shown on the previous year’s tax return to avoid the alleged tax penalty. … If you earned more than $ 150,000 in a year, then the requirement increases to 110%.
To be on the safe side, you probably want to use 100% of the previous year’s profits, especially if your income is indeed variable. When you start filing taxes as a freelancer, the IRS makes it convenient and usually sends1040-ES payment vouchers to make it easier (you can also pay online with Direct Pay ). To find out more, navigate to the full Forbes post below.
Calculating Taxes Made Easy | Forbes