Generally, people who earn over $12,000 a year must pay taxes, and self-employed people might need to pay “estimated” taxes four times a year to avoid penalties.
Keep Good Records, Pay Fewer Taxes
Often, the better records you keep, the fewer taxes you’ll pay.
To make things easier, invest in record-keeping software like Quickbooks or Xero. Then, enlist the help of a small-business tax accountant who can squeeze every deduction and credit out of your data, thereby decreasing your tax burden.
Estimate Income and Pay Quarterly
To avoid penalties, people who owed at least $1,000 in taxes in the prior year must pay at least 90% of this year’s taxes or 100% of last year’s taxes over four quarterly payments — whichever is less. Corporations that owed at least $500 in the prior year, must also make estimated tax payments.
Since the required estimate to not be penalized is the lesser of 90% of this years tax, or 100% of last year’s tax, if you’re making less money this year you may want to base your estimates off current year income.
The most efficient way to keep track of current earnings is by using software, which typically can generate a profit and loss statement on demand. Use that feature, filter by date range, and pay the appropriate amount of taxes, per quarter, on that figure.
Others simply use last year’s figures as a calculation base instead of the quarterly intake. However, if you made more money this year than last, you should expect to have a tax balance due when filing your tax returns. If you over estimate your quarterly tax payments, you may receive a refund check when you file your tax returns.
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Use the IRS Tax Portal
It’s the 21st century, and the Internal Revenue Service has caught up with the times. The agency maintains a website that allows taxpayers to login and make payments via bank transfer. Or, mail in check payments and just use the site to keep track of your IRS profile.
You can also use authorized third-party vendors to pay by credit card. Note, however, that you’ll incur a fee. Sometimes it makes financial sense; sometimes it doesn’t. Consult with a tax accountant to discover the best solution for your specific situation.
We Can Help You Save on Taxes!
The Gordon Law Group works with freelancers and self-employed entrepreneurs across the United States and around the world. We help clients build optimal tax and savings plans, and our team is known for compliantly cutting tax burdens.
Get in touch today. Let’s talk about how we can help you save on taxes.