- #HOW TO FILE FEDERAL TAXES FOR SMALL BUSINESS HOW TO#
- #HOW TO FILE FEDERAL TAXES FOR SMALL BUSINESS SOFTWARE#
#HOW TO FILE FEDERAL TAXES FOR SMALL BUSINESS SOFTWARE#
If you use tax-preparation software from someone like H&R Block and you owe $1,000 or more, the software typically calculates estimated tax payments. If your freelance work constitutes a significant portion of your income, you should probably pay estimated taxes.Ī good rule of thumb is that if your side income is less than 10% of your gross income – earnings before taxes – you probably won’t need to make estimated tax payments. If you have a full-time job with tax withholding and also work on the side, and you either receive a 1099-NEC or have clients or customers who pay you directly, you need to determine how much of your income is untaxed. Freelancers With a Regular Job That Withholds Taxes If you file as a sole proprietor, S corporation shareholder, partner, self-employed individual, or single-member LLC, you likely need to pay estimated taxes regularly. Self-Employed Full-Time Workers and Small-Business Owners
If you fall into one of these two groups, you most likely need to make estimated tax payments.
#HOW TO FILE FEDERAL TAXES FOR SMALL BUSINESS HOW TO#
To avoid this penalty, you need to know if you’re responsible for estimated taxes, how to determine the amount, and how to send your payments efficiently. If you don’t make quarterly estimated tax payments and are required to, the IRS will hit you with a penalty for failure to pay estimated taxes. The due dates for quarterly estimated payments fall near the middle of the months of April, June, September, and January. You then send in four quarterly payments that together total that amount. Paying estimated taxes requires you to estimate in advance how much you expect to owe the government in taxes for the current tax year. Since, as a self-employed person, nobody withholds income taxes for you, you may need to make estimated payments. If you’re in business for yourself, however, you need to be your own HR department and regularly send the IRS money.
Employee withholding is based on the most recent Form W-4 filed with the employer’s HR department. If you prepaid too little, you have to make up the difference and pay more. When you file, if you prepaid more than you owe, you get some back. Your Form W-2 has the withholding information for the year. Those payments to the IRS are your prepayments on your expected tax liability when you file your tax return. When you’re an employee, it’s your employer’s responsibility to withhold federal, state, and any local income taxes and send that withholding to the IRS, state, and locality. While it’s a little extra work, filing your estimated tax payments each quarter helps you stay on top of your taxes. It also protects you from having to cough up all the dough at once.
Just as income tax is withheld from employees every pay period and sent to the IRS, the estimated tax paid quarterly helps the government maintain a reliable schedule of income. But freelancers and small-business owners usually don’t have a human resources department pulling tax money out of their paychecks, so they have to pay estimated taxes four times a year. Some money is withheld from their check each pay period, so all they have to do is file by the IRS tax deadline to get a tax refund. It often seems traditional employees get the better part of the deal when it comes to paying taxes.
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