Strategies to Save for Your Quarterly Tax Payments
While many people like to focus on all the benefits of self-employment, and there are many, there are also distinct downsides to self-employment. One of the greatest burdens can be paying your quarterly taxes. Somehow, when your employer takes out taxes you don't feel the sting as much as you do when you're self-employed and have to pay the taxes yourself.
The worst thing you can do is wait until the last minute to scrounge up the money that you need. (Ask me how I know!) In this situation, best case scenario, you have a very tight month financially because all of your money has to go to taxes. Worst case scenario, you're unable to round up the money that you need and have to pay late and face a penalty.
First, discuss your tax responsibility with your accountant. She can let you know how much you should pay per quarter.
The easiest way to save is to divide that number by 12 and set aside that amount each month. For instance, if your state and quarterly taxes are a combined total of $3,900 per year, you know that you'll need to set aside $325 per month.
Another tactic is to know your tax bracket and take that amount out of every paycheck that you receive. Let's say you're in the 15% tax bracket. If you receive a payment for $1,000, you'll automatically take 15% (or $150) off the top and put it aside for taxes.
There are a few other strategies you can also utilize. If your spouse is employed outside the home, he can adjust his withholding to the maximum allowed. Then, there will be less chance that you will owe taxes at the end of the year.
Likewise, if you are going to get a tax refund, rather than taking the refund, you can pay your taxes for the upcoming year upfront with your refund.
Paying quarterly taxes is one of the more painful parts of being self-employed, but using these strategies, you can take some of the sting out of the process.