What you need to know when filing your taxes if you’re self-employed
By Andrew Keshner
January 28, 2022
For freelancers, independent contractors and the self-employed, awareness of tax obligations is “the very most important thing,” said Keith Hall, president and CEO of the National Association for the Self-Employed.
A newly self-employed person who may be used to employer paychecks must remember that not all the money that comes from a sale or a client belongs to them and a portion should be earmarked for taxes, said Hall.
Remember to pay the IRS in increments. If a person is self-employed, they hold back a portion of their money and send it to the IRS every quarter.
Where does the money go?
• Income tax
• Self-employment tax (covers Social Security and Medicare tax dues)
What are upcoming tax payment deadlines for self-employed people?
• April 18 for first quarter estimated payments
• June 15 for second quarter
• Sept. 15 for third quarter
• Jan. 15, 2023 for fourth quarter
So how can a self-employed individual calculate estimated payments?
“The general rule is that each quarterly payment should equal 25% of the lesser of 90% of what your tax liability will be on your tax return for that year, or 100% of the taxes shown on your previous year’s return.”
– Mike Slack, manager of H&R Block’s Tax Institute
Hall recommended coming up with a business plan on anticipated revenue and expenses, then dividing that estimated income into four to calculate the estimated tax payment. The installments don’t have to be identical though.
But the estimated number is just that — an estimate. If business is better than expected, you may have to increase the amount of taxes paid. If things are slow, you can dial it back.
Photos by: iStock/Getty Images Story by: Andrew Keshner Google Web Story by: Amelia Langas