Self-employment Tax and Quarterly Tax Payments

Being self-employed definitely has its perks. No one is giving you orders, and you get to pick your own projects and hours. Despite the fact that a boss is no longer breathing down your neck, you can’t escape IRS tax requirements. If you own a small business and want to avoid being penalized for missing a tax payment, consider this information about self-employment tax obligations.

Self-employment Tax

According to the official IRS website, self-employed means you are the sole proprietor, independent contractor, or a member of a partnership with a business or trade. If you fall into one of these categories, you have certain tax obligations that you should be aware of. As a general rule, self-employed individuals file an annual return as well as pay estimated taxes quarterly. This includes self-employment tax, which, according to the IRS, is a “Social Security and Medicare tax primarily for individuals who work for themselves.” Note that this is a separate requirement from income tax.

Estimated Tax Paid Quarterly

To take care of your self-employment tax, you will most likely be asked to pay an estimated tax four times a year. Estimated tax is exactly what it sounds like. You simply use last year’s return and the 1040-ES form to approximate the amount you owe each quarter. In short, four times a year, you are required to pay taxes on a quarter of your return from the previous year. If you discover that your estimate is too high or too low, don’t worry. Just fill out a 1040-ES worksheet to correctly recalculate your estimated tax, and you will get a refund or pay the difference.

Don’t miss the deadline for your quarterly taxes. The IRS does not take kindly to late payments, and you will be penalized for missing your deadline.

Paying taxes quarterly can be a pain, but once you learn the rules and stick to the schedule, it is much less of a hassle. If you are struggling with understanding every tax hill you have to climb, you might want to consult a company that specializes in these types of services. Whether you live in Chicago or Idaho Falls, small business financial services companies can help you during stressful tax times.