There are millions of U.S. workers that are self-employed, many of whom are part of the growing gig economy and are taking side jobs. Self-employment can have complicated tax implications and knowing how to navigate through them can become a challenge. Trying to understand all the tax laws regarding self-employment can get overwhelming. Below, you will find some helpful information when it comes to understanding your responsibility as a taxpayer.
What Are Estimated Taxes?
If you receive any income that comes free of taxes, you should be paying estimated taxes on a quarterly basis. This untaxed money can come from a job, investments, alimony, or prizes that you have won. If you fail to pay your estimated taxes close to the time you received your money, you could end up with a fine from Uncle Sam, known as the penalty for underpayment of estimated taxes. You must pay estimated taxes if you expect to owe at least $1,000 in federal taxes for the year.
When to Pay Estimated Taxes
Ordinarily, you should be paying estimated taxes 4 times per year starting April 15. However, if you didn’t receive any income through March, you can skip the April payment. Your next payments should be June 17th, September 16th and January 15th. It can seem confusing for the last payment to be at the beginning of a new year but, it is the final installment of the previous year.
What Happens if You’ve Paid too Little?
Unfortunately, if you fail to pay the estimated amount you owe in taxes, you could receive a penalty. The IRS calls this the penalty for underpayment of estimated taxes. The IRS will waive the penalty for taxpayers that paid the equivalent of 80% of their tax liability from 2019 or 100% of their taxable liability in the prior year of 2018.
How Much Should I Pay?
If Foster Financial did your 2018 taxes, you received quarterly slips to send in with your payments, and the amounts due. if another CPA did your taxes and failed to provide these to you, contact us and we can help you calculate your payments.
Learn More About Estimated Taxes
If you are self-employed or have untaxed income from other sources, Foster Financial CPA can help you navigate through the complicated tax laws and keep you in good standing with the IRS. If you have questions regarding your tax liability, contact us today for answers.