Freelancers and contractors...quarterly taxes!?

The Devo

I haven't quite worked out how to deal with these yet. I don't really make enough to warrant an accountant, and I'm trying to be better about handling the business end of things. I've done some reading on the subject, but I wondered about other's experiences. Is it a pain, or easier than I'm making it out to be?

Do you file the old-fashioned way, or do you use software like TurboTax?

I read that you calculate your estimated taxes not by estimating how much you think you'll make, but rather by taking 90% of what you owed the previous year, then breaking that down into 4 payments?

Do I need to file both State and Federal quarterly?

Thanks for any advice!
Chris

skyline5gtr

I use turbo tax at the end of the year and plan ahead but I know my dad does it quarterly but he makes a lot more then me and its easier to budget. Pretty sure you need yo do both but not positive 

JedTheKrampus

Quarterly estimated payments are the self-employment equivalent of withholding taxes that happen when you work for a company. If you don't pay them the IRS will penalize you for an amount roughly equal to the interest you would owe on a loan for the amount you owe in taxes. It's OK to underpay or overpay by a bit but you want to be as accurate as you reasonably can.

In April you file your 1040 or use software to file your 1040 and that's when you settle up the difference with the IRS. If you overpaid, you'll get money back and if you underpaid you'll pay them a little more.

Try not to overpay by a lot because you want a big tax return in April--you're making an interest-free loan to the government in that case. If you want to save up for something use a savings account that will give you at least a little bit of interest.

Some states require estimated payments as well if you expect to owe more than a certain amount that's not withheld from a paycheck. Search "<state name> estimated payment" and you should be able to get more concrete criteria for your state.

Rurouni Strife

As far as how to pay, you use the IRS website. It's pretty simple.

One thing to mention is to not forget State taxes as well, and local if it applies. They want their money too. The penalty is usually much lower or existent, but you should still check on your States taxation site.