As a freelancer, it is solely your job to report your earnings to the IRS. If you are among the majority of independent contractors who receive money from assorted clients without taxation, you must decide whether to file estimated quarterly taxes, in addition to paying what you owe on or before April 15. Here’s what you should know about estimated taxes and why quarterly filings are recommended by attorneys and other legal professionals.

What Are Estimated Quarterly Tax Payments?

The IRS considers freelance contractors who earn direct income from various clients “self-employed” and requires those who expect to owe $1,000 or more in annual taxes to pay quarterly. Estimated tax includes income and self-employment. Self-employment tax covers factors such as Medicare and Social Security. Determining quarterly taxes requires estimating your adjusted gross income for the year, as well as your expected income, credits, and deductions. The IRS provides form 1040-ES for calculating estimated taxes, which you make on a quarterly basis.

If you are unsure about your estimated adjusted gross income, look at your returns from the previous year to make an educated guess on what you will earn this year. Note that paying these estimations does not exempt you from reporting all income from clients over $500 and paying your annual taxes.

What Are the Benefits of Paying Quarterly?

Figuring out your quarterly estimated taxes as a freelance contractor may first appear time-consuming and complex, but it offers two distinct benefits. In addition to paying less money during tax season because you have already paid for the year, you will not be penalized by the IRS. The IRS charges a small penalty for freelancers who skip quarterly taxes, as well as interest on missed payments.

Attorneys suggest overestimating how much you owe in quarterly taxes to not only avoid paying a significant lump sum during tax season but potentially receive a refund from the IRS. Overpaying estimated taxes is one of the few ways the IRS refunds independent contractors. 

If you need additional help navigating tax laws, rely on the experienced attorneys at Shelton Law Firm. The family-owned, community-minded law firm has served Lucas County, IA, since 1966, offering tax preparation and many other services. Call (641) 774-5956 today to schedule a consultation, or visit the attorneys online to learn more about their areas of practice.