There are several different types of workers who label themselves as self-employed. Some call themselves freelancers, while some are part of the “on demand” economy. Still others consider themselves consultants, contractors, or even solopreneurs. Regardless of the term, one of the main draws to self-employment is the flexibility of being your own boss.
There is a common thread to all self-employed workers and that is quarterly taxes. If you anticipate owing more than $1000 in taxes at the end of the year, you are required by the IRS to make quarterly tax payments throughout the year. This is in addition to filing taxes at the end of the year like everybody else.
By making these estimated payments four times per year, you will significantly reduce, or even eliminate, a surprise tax bill come tax time, since the funds have already been withheld. In addition, you will avoid IRS fees, interest penalties and possibly even an IRS audit which could be triggered by any missed payments.
Also, by claiming and managing all business-related deductions as you go, you will be able to substantially lower your estimated payments each month. This is one example of where keeping things organized translates directly into savings.
So no matter what type of self-employed business you have, stay on top of your records, keep your calendar marked for the four quarterly tax due dates, and you will go a long way towards simplifying your taxes and avoiding any surprises each spring.