If you work for yourself (or are thinking about working for yourself), make sure you know what your tax obligations are! Just because you don’t have an employer withholding taxes doesn’t mean you’re off the hook. Read on to find out more.
Quarterly Income Tax Payments
Everyone in the United States has to pay taxes on their income throughout the year. If you’re employed by someone else, though, you don’t really have to pay attention to that because your employer withholds money from your paycheck and pays the IRS on your behalf.
If you are self-employed, however, you have to take care of these payments throughout the year on your own. You are required to make estimated quarterly tax payments to the IRS. If you don’t make these regular payments, the IRS will assess penalties and fees that you’ll have to pay on top of your tax liability.
In addition to making quarterly tax payments on their income, self-employed individuals also have to calculate and pay a specific self-employment tax throughout the year. This tax mirrors the Social Security and Medicare taxes that employers withhold and pay to the IRS. As with income tax payments, these contributions need to be made quarterly.
Estimated Tax Payments
So, how do you know how much to pay? If your self-employment income is pretty consistent, you can calculate your estimated tax payments based on your previous year’s tax return. If not, you should keep track of the money you’re bringing in each quarter to calculate how much you need to pay.
If this sounds like more number crunching than you want to take on, contact the team at Taxation Solutions, Inc. We’re your resource in Cincinnati for self-employment tax assistance. Call us today for help with self-employment tax planning and preparation so you can focus on your business!