Taxes for the self-employed can be daunting, just the mere task of figuring out what deductions you're eligible for can be intimidating! On top of that, they also have to worry about making quarterly tax payments, since freelancers don’t have employers to withhold their taxes, they have to pay their taxes to the IRS four times a year.
These quarterly taxes are used to pay for the Federal and State income tax, Self-employment tax, Social Security, and Medicaid/Medicare.
Now, when it comes to filing taxes, accuracy is very important. Submitting incomplete or incorrect information to the IRS can result in an audit, which can further lead to a penalty. The IRS can charge you a penalty for delayed or inadequate payments, even if you’re due a refund when you file your tax return.
Plus, these penalties can be very steep.
So, the best way to avoid these penalties is to carefully review and calculate your expenses. To figure out your estimated tax amount, you need to consider a few things: your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.
The general rule when it comes to calculating your quarterly payment amount is to figure out the amount of tax you think you will owe for the year and divide it by four to get an estimate of your quarterly payment amount. But this only works if you have a steady income.
You can also estimate your annual tax liability based on what you've earned earlier in the year. If you determine that you over or underestimated your earnings after making a quarterly tax payment, you can recalculate ahead of the next quarterly payment. Towards the end of the year, you may have to explain to the IRS why your quarterly payments were uneven.
You can calculate your taxes yourself or hire a CPA to take care of it. If you choose the former method, you can either spend your time mulling over spreadsheets and keeping track of all your expenses or you can use bookkeeping apps.
Another option is to automate your expenses. Apps like FlyFin can help you accomplish this task.
Flyfin’s Quarterly Tax Calculator is powered by A.I. that scans through all your expenses and categorizes them into appropriate deductions. The app also ensures that you don’t have to pay a penny more than what you actually owe. Thus, reducing your chances of underpaying or overpaying your taxes.
When the next quarter of estimated tax payments is around the corner, FlyFin will remind you about the due date with a two-week headstart to ensure that your taxes are accurately calculated and filed on time.
It’s important to track your expenses but relying solely on traditional methods of bookkeeping can be hectic. Therefore, automating your expenses is the most efficient way to lower your taxes and maximize your savings. Also Read - Top benefits of paying taxes online
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