The Procrastinator’s Guide to Filing Quarterly Taxes

There's a lot to like about freelancing. Remote work, flexibility, and being your own boss are amazing. But filing quarterly taxes? Not so much.

Before spending all your hard-earned cash, you need to get square with Uncle Sam. If you procrastinated on filing quarterly taxes — yet again — this guide is for you.

Do I have to pay estimated quarterly taxes?

Our tax system doesn't operate on IOUs.

This means the IRS expects their share immediately through quarterly estimated payments.

When you are a freelancer — or have any type of side hustle — you need to pay your share every quarter.

Not sure if you need to pay? Let's start with the basics.

  1. Do you earn income where taxes aren't withheld?
  2. Will you owe at least $1,000 in taxes for the year?

If you answered yes to these questions, you are on the hook for paying estimated quarterly taxes.

Oh, and gigs like driving for Uber or renting rooms on Airbnb count too — even if you don't get an income statement.

When are this year's quarterly tax deadlines?

Your payments must be postmarked or paid online by these dates:

  • 1st payment – April 17, 2018
  • 2nd payment – June 15, 2018
  • 3rd payment – September 17, 2018
  • 4th payment – January 15, 2019

You can read more about these deadlines here.

What happens if I don't pay?

Well, nothing at first. But you could owe penalties and interest for your late payments.

No one likes wasting money. Do yourself a favor and pay your quarterly taxes on time. Avoid the headache of missed deadlines by trying one of these strategies.

Strategy #1 – Pay 100 percent of last year's bill

Are you short on time? Does Form 1040-ES give you hives? Or is calculating how much you owe too overwhelming?

There is a simple solution — pay 100 percent* of last year's taxes.

This only takes a few steps:

  1. Look at last year's tax return to see how much you paid.
  2. Divide that number by four.
  3. Make four equal payments by the deadlines listed above.

*Note: If your adjusted gross income is more than $150,000, you will have to pay 110 percent to avoid penalties.

If you pay 100 percent of last year's bill you will avoid penalties — but you may still owe money next April.

To be safe, set aside 30 – 40 percent of everything you earn. Keep it in a separate bank account, make your quarterly payments, and don't touch the rest! 

Next April, one of these two things will happen:

  1. You overpaid – Deposit your refund into an emergency fund.
  2. You underpaid – Use your savings to cover the extra taxes.

It's a flawed strategy because under or overpaying is inevitable. But you can rest easy knowing you won't waste money on penalties.

Strategy #2 – Closer estimate: Form 1040-ES

This strategy comes second because it's much harder.

It's confusing AF, and should be done by a tax professional. But some of you will want to try it yourselves, so here is a breakdown.

Start by printing all twelve pages of Form 1040-ES.

Read everything and then go to pages 7-8 for your calculation.

Step 1 – 2018 Self-Employment Tax Deduction Worksheet

Line 1a – Total estimated income minus qualified business expenses — or net profit from line 31 of your Schedule C.

Line 1b – Ignore this line if you don't have farm income and receive Social Security payments.

Line 2 – If line 1b doesn't apply, this is the same as 1a.

Line 3 – Multiply your net profit by .9235 or 92.35 percent.

Line 4 – Multiply line 3 by .029 or 2.9 percent.

Line 5 – You won't pay Social Security tax on income above $128,400.

Line 6 – Your total expected income up to $128,400.

Line 7 – Subtract your total expected income from $128,400.

If your answer is zero or negative, put 0 on line 9 and skip to line 10.

Line 8 – The smaller of line 3 or line 7.

Line 9 – Multiply line 8 by .124 or 12.4 percent.

Line 10 – Add lines 4 and 9. Your answer goes on line 9 of the next worksheet.

Line 11 – Multiply line 10 by .5 or 50%. This is your self-employment tax deduction. Subtract this when calculating your adjusted gross income on the next worksheet.

Step 2 – Estimated Tax Worksheet

Line 1 – Your adjusted gross income. Don't forget to subtract line 11 from the first worksheet!

Line 2a – Enter the standard deduction (right column on page 2) or your itemized deductions for 2018, whichever is greater.

Line 2b – Do you qualify for the new 199A qualified business deduction? No one knows who qualifies. But it could be up to 20 percent of your income! I suggest waiting until the details have been ironed out.

Line 2c – Your total deductions.

Line 3 – Subtract your deductions from your adjusted gross income.

Line 4 – Use the tax rate schedules on page 7 to calculate your tax.

Note: Got qualified dividends, a net capital gain, or expect to deduct foreign earned income or housing? You will need Pub. 505 for those calculations.

Line 5 – Add alternative minimum tax in here.

Line 6 – Add regular tax + alternative minimum tax.

Line 7 – Add your tax credits.

Line 8 – Subtract tax credits from total tax. If zero or negative, write 0.

Line 9 – Self-employment tax is line 10 from your previous worksheet.

Line 10 – See top of page 6 for an explanation on other taxes.

Line 11a – Add lines 8 – 10.

Line 11b – Do you qualify for one the tax credits listed? Enter the total here.

Line 11c – Subtract line 11b from 11a. If zero or negative, put 0.

This is your total estimated tax for the year.

Line 12a – 90 percent of your total estimated tax.

Line 12b – 100 percent of last year's tax.

Line 12c – Paying the smaller or 12a or 12b will avoid a penalty.

Note: You will be charged an underpayment penalty if you don't pay at least 90 percent of this year's tax due.

Line 13 – If you haven't withheld taxes, ignore this line.

Line 14a – Subtract withheld taxes from line 12c. If your answer is zero or negative, you don't have to pay quarterly estimated taxes.

Line 14b – Subtract withheld taxes from total estimated tax. If your answer is less than $1,000, you don't have to pay quarterly estimated taxes.

Line 15 – 1/4 of your total estimated minus any taxes withheld.

This method requires careful record keeping — which you should be doing anyway. The closer you get to the end of the year, the more accurate your numbers will be.

How to pay your quarterly estimated taxes online

1. Go to the IRS Direct Pay website.

2. Choose estimated tax for the reason and the current year.

3. The next step is to verify your identity.

4. The next step is entering your payment details. You get credit for your selected payment date even if it takes longer to process.

5. It's also possible to pay by debit or credit card, but this costs extra. Debit card fees range from a flat $2.00 – $3.95. Credit card fees range from 1.87 – 1.99 percent.

Note: If you can't afford your payment, apply for a monthly installment plan. It will be much cheaper than carrying the balance on your credit card.

What about submitting Form 1040-ES?

You only need to send this if you are paying by check or money order. Instructions are at the bottom of page 9.

Don't forget to pay your state taxes!

If you aren't lucky enough to live in a state like Tennessee, you need to budget for state income taxes too. The one positive is state rates are generally lower than your federal taxes.

Google your state + quarterly estimated taxes for your state's worksheet. For example, here is the estimated tax worksheet for Massachusetts.

These worksheets will feel easy compared to calculating your federal taxes.

Taking charge of your quarterly taxes

For many, setting money aside for quarterly estimated payments is the biggest challenge. Don't punish yourself for making mistakes — very few get it right from the beginning. Most learn through errors, make adjustments, and avoid tax catastrophes in the future.

Disclaimer: I am not a CPA, enrolled agent, or accountant. This should not be considered individual financial advice. There is no substitute for seeing a qualified tax professional who can review the specifics of your situation. 

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Discussions — 2 Responses

  • Chonce April 17, 2018 on 2:14 pm

    While I am NOT a procrastinator (I’m fearful of being too late lol) I know plenty of people who are that would LOVE this! Thank you, you make everything so easy to understand and do.

    Reply
  • Shaun July 2, 2018 on 2:55 pm

    Wait, I’ve never paid quarterly taxes, not for the past 6 years at least when I’ve been making enough “side income” that I could be considered at least partially self-employed. And I’ve never gotten any penalties or letters from the IRS… am I just lucky or what? I knew you could pay them quarterly so that you don’t end up owing a big amount at the end of the year, but I’ve never heard anything about it being required.

    Reply

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