Everyone knows New Yorkers are a tough bunch, but there’s one thing that could bring even the toughest wiseguy from Brooklyn to his knees: taxes! And if you’re an online seller or independent creative person or even a freelancer, you have to deal with taxes not just once a year, but FOUR times a year.
It’s all made that much worse if you don’t know what you’re supposed to do. If you’re new at this whole independent business owning thing, paying Uncle Sam is probably the furthest thing from your mind at the moment. But it’s very important, and can sneak up on you at a moment’s notice! Unlike regular old wage slaves, you have to pay taxes all year long!
So we thought we’d help those struggling with this problem by putting together a quick 101 guide to quarterly estimated taxes. Hopefully this will take out some of the mystery of the process so you can get back to what you do best – making stuff and selling it to people!
What Are Quarterly Estimated Taxes?
Quarterly estimated taxes are taxes you have to pay as an independent seller or freelancer. When you work a salary or wage job, your taxes are automatically deducted each pay period. So if you work 80 hours over a two week period, your final paycheck reflects those taxes taken out.
When you sell arts and crafts goods, those taxes aren’t automatically taken out. However, you still need to pay in to the government. The way you do that is with tax payments every quarter.
They’re spaced far enough apart to give you time to prepare at least. Quarter 1 just passed in April, the same time you paid/filed your federal taxes. The ones coming up you’ll have to deal with are:
Q2: June 15th
Q3: September 17th
Q4: January 15th, 2013
And so on and so forth, starting back again in April. Miss one of these dates and you’re bound to get hit with some sort of fine in April when you file your federal and state taxes.
How Do Quarterly Estimated Taxes Work?
One of the most important things to remember when dealing with quarterly estimated taxes is to keep up with all your paperwork. Invoices, bills, receipts, whatever else you deal with on a regular (or irregular) basis during business hours. Keep it all organized and in one place so you can find it later.
Now when the time comes to deal with these quarterly taxes, you’ve got everything right where you need it. It’s basically just like doing a 1040 form during tax time – you have to figure out how much money you really made after taking out all the deductions and credits. Once you get an adjusted gross income you can figure out how much tax money you owe off of it.
To file, pick up a copy of 1040-ES, which is the tax form specifically for quarterly taxes. Enter in all the appropriate information and send it in. If you’d rather do it electronically, use the Electronic Federal Tax Payment System (EFTPS). Although you have to enroll before using it, the EFTPS lets you set up a system to automatically take out payments.
If this is more confusing to you than the New York subway system to a tourist, Outright.com offers a handy quarterly estimated taxes estimate. Import your bank accounts, PayPal, and credit cards into your free Outright account, then head over to the Taxes tab to check out what you owe. (Keep in mind we can’t predict your tax credits – such as childcare or the earned income credit – so our estimate will err on the side of paying more and keeping you out of trouble with the IRS.)