Want to know the one phrase that sends a shiver down every independent’s spine?
More officially, “IRS Form 1040, Schedule C, Profit or Loss From Business.” As a Self-Employed Independent, this is a standard, required part of your annual tax return (you can alternatively file Schedule C-EZ).
But when it comes to your taxes as an independent, there’s a bit more to it than an additional worksheet to fill out in April. There’s also your quarterly estimated tax payment, which is due – you guessed it – four times a year.
Without a payroll check from your employer, who would normally automatically withhold taxes, you’re now on the hook. Sometimes called the "self-employed tax," these monies essentially equate to the Social Security and Medicare contributions that would have been taken out of someone's traditional wages a nice and tidy 26 times a year (assuming an average bi-weekly pay schedule).
If you’re not ready, it can make quite a dent in your bank account. But trust us, four times a year is much easier to handle than filing a tax form on your own every two weeks.
So with that in mind, let’s get you ready for your quarterlies – in just four steps. (Four. See what we did there?)
For first-timers, the IRS offers this advice:
“…If this is your first year being self-employed, you will need to estimate the amount of income you expect to earn for the year. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated taxes for the next quarter.”
Like any tax preparation, this can all seem overwhelming, but by creating an organized system, maintaining your records and starting early - filing your quarterlies can be a far less painful task than others may have you believe.
If you still need more help be sure to poke around the Small Business Taxes: Virtual Workshop created by the IRS, and never hesitate to contact an accountant or licensed tax professional if you still feel like you’re in over your head.
If your eyes are still glazing over and the very thought of interpreting IRS legalese makes your stomach turn consider ditching the quarterly tax burden all together. MBO’s services for self-employed professionals allow independents to take advantage of all the exemptions and deductions without the hassle of filing quarterly estimates or itemizing on a Schedule C. Give us a call or shoot us an email today to learn more.
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