Every year, self-employed business owners are faced with the required task of paying estimated taxes on revenues generated through sales. This often includes keeping track of all earnings and expenses as well as making quarterly estimated tax payments to the government. While this can seem like a tedious aspect of the business to manage, there are some helpful tools and resources available to assist small business owners with this process. Read on to review ten tips for paying estimated self-employment taxes as a small business owner.
Get Your Tax Records Organized
The key to paying estimated taxes correctly is to keep accurate records of all transactions. This includes all records of income from customers in the form of cash, checks, credit card payments and online payment sources. Getting your tax records together also includes keeping receipts from business expenses. Designate a filing system to keep hard copies of all these documents and also scan them in as a digital form for ease of referencing tax records when filing estimated tax payments.
Obtain a Tax Identification Number
At tax time, you will be required identify your business by use of either a social security number or a federal tax identification number. In order to protect yourself as a self-employed person, you will want to request a tax ID number to keep business income separate from personal income sources. In the United States, you can get this federal tax identification number at no cost by visiting the Internal Revenue Service website and applying for one.
Get Educated About Taxes
In most regions, there are community resources that aid self-employed professionals with the various requirements of doing business. Programs offered by the Small Business Administration (SBA) give entrepreneurs information and resources for paying self-employment taxes. Consult with SBA volunteers who can give you the tools end education needed to successfully manage this part of being in business. You can benefit from free tutorials, videos, classes and online resources that the SBA provides.
Establish a Tracking System
In order to keep up with the requirements of paying self-employed taxes, set up a simple system for tracking all the income you earn throughout the year. An Excel spreadsheet works well for this purpose because you can set up different columns for each expense, create a list and even add in formulas for determining your quarterly tax liability. Then whenever you receive income, you can add it to this spreadsheet and you have a record to use during tax time.
Research Your Tax Liability
In order to figure out what your actual self-employment tax liability, take some time to determine what you have to report and what income bracket you fall under. You are required to pay your self-employment taxes based on a percentage of the actual amount you earn annually whilst conducting any type of activity that involves earning money. However, you are not required to pay tax on goods and services that are bartered or volunteer time and goods donated.
Use a Tax Calculator
To figure out the actual amount for paying estimated taxes as a self-employed professional, a great tool is a free online tax calculator. Simply plug in the amount you have made within a three-month period and the tax calculator will determine how much you should pay. A general rule of thumb for any self-employed person is to set aside at least one-third of all income for self-employment taxes
Obtain Business Accounting Software
Another reasonable way to handle the task of paying estimate self-employment taxes is to download a free or low cost business accounting software. Most business software will include a section for calculating estimated quarterly taxes as well as a calendar to keep track of important tax payment deadlines. In addition, you can run reports to determine actual income and expenses, which makes it easier when filling out tax forms.
Include Payment When Filing Your Tax Return
Your self-employment taxes will be determined on your individual tax return, and the amount you owe is found at the bottom of the form. Enclose a check or money order as your payment along with tax form 1040-V, or use the online payment process to comply. If you expect to owe more than $1,000 USD in self-employment taxes, you may want to use a credit card to soften this liability and give you the opportunity to pay over time. If you cannot pay all of your estimated self-employment taxes, then you have the option to file an extension or make payment arrangements with the IRS.
Pay Self Employment Taxes on Time
Self-employment taxes are due four times a year, at each quarter. It is important to pay your taxes on time to avoid tax penalties and late fees. These dates are April 15, June 15, September 15 and January 15 of every year. If you miss a date, you can file for an extension to get additional time to send in payment, or you can pay your taxes on the next available date, plus any late fees associated.
Seek Professional Guidance
If in doubt at any time whilst paying estimated taxes as a self-employed person, get in touch with a professional business tax accountant who can guide you through this process. A certified tax accountant who deals with small business owners can be of great assistance during tax time. In addition, if you make an error trying to figure out self-employment taxes, your accountant can get you back on track to make sure you are successful.
References and Help with Payment of Self-Employment Taxes
If you are new to paying self-employment taxes, or need some more information, the following resources can provide additional help:
Small Business Administration https://www.sba.gov/content/tax-help-and-training
Internal Revenue Services, Small Business and Self-Employed Tax Center https://www.irs.gov/businesses/small/index.html
Inc. Magazine, Small Business Tax Strategies https://www.inc.com/guides/legal/20687.html
Photo used with permission from Morgue File/Cohdra