Freelancing — it’s great until April 15 comes around and you haven’t got the money to pay the IRS. Or almost as bad, remembering to pay up but getting hit with penalties for not filing quarterly.
According to Jonathan Medows, a New York-based CPA and blogger for the Freelancers Union, the biggest mistake that freelancers make is failing to pay their quarterly estimated taxes.
Quarterly estimated taxes are the payments that self-employed people usually need to make four times a year to the IRS. You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.
Penalties can vary for not filing quarterly — that’s money that no one likes to lose.
It doesn’t matter if you use an accountant or file your taxes yourself, if you’re a 1099 employee or a freelancer, it’s up to you to file your taxes four times a year and to make sure you’ve got the money set aside to pay them.
Here are three more big money mistakes that freelancers make when it comes to their taxes:
Not charging what you’re worth: According to Medows, one of the top mistakes he sees is freelancers offering to do work for too little or neglecting to ask for a deposit in an advance of services. That’s how self-employed workers end up getting squeezed. Don’t discount yourself! You’ve got the skills to pay the bills — step up and demand what you need to get the job done.
Not taking into account the cycle of your business: Are you crazed in the summer but have a lot of down time in the fall? Make sure you budget for slow seasons so you’re not pinched after putting money away for taxes.
Writing everything off. Think you can write off your rent, car and new fall wardrobe? Think again. Talk to your accountant or check with IRS.gov if you’re unsure. Know what you owe.
If you’re suddenly filled with panic, don’t worry. There’s still time to get your quarterly taxes together for January 2016.
Qapital’s Freelance Rule lets you automatically put aside money for your taxes from every paycheck. Our simple solution helps freelancers and independent workers stay on top of their quarterly taxes and avoid trouble with the IRS.
Here’s how it works:
1. Connect your regular bank. Download the Qapital app and connect your checking account to an FDIC-insured Qapital account. We integrate with nearly 20,000 banks in the U.S.
2. Set a percentage. Choose the income percentage you’d like to set aside. For example, if you want to put aside a third of your income for your taxes, set the Freelancer Rule to 30%.
3. Sit back and relax. Qapital’s free app will automatically transfer that amount out of every deposit over $100 into your FDIC-insured Qapital account.
4. When you’re ready to pay your taxes. Simply transfer that money back into your checking account to pay the IRS. Need to take it out before? You have full access to your Qapital account, whenever you need it.
Put money in its place
Master your money with the app that makes it easy to divvy up every dollar so you can balance what you want with what you need.
Already use Qapital? Click here to set up the Freelancer Rule.
