Alright – so you are a freelancer, maybe working on the side, or a small business owner making some money, which is awesome. The downside is you need to pay taxes on that income, and you need to figure out what you owe.
Do you need to make estimated tax payments?
If you fall into both of the following categories you had better pay up:
- You are expecting to owe at least $1,000 or
- Your withholding will be less than: the smaller of 90% of your 2015 taxes or 100% of your 2014 taxes.
I am not going to cover the guidelines if you are a farmer or a fisherman. The important part is that you can usually pay in 100% of your 2015 taxes and be safe unless you hit $150,000 in income. Then it is 110% of your 2015 taxes. Now, if your income moves around a lot, and you have time to calculate it, you can take the option of paying in 90% of your 2016 taxes.
You have 2 choices of when to pay your taxes:, either 100% on April 15, 2016 or in equal payments on:
- April 15, 2016
- June 15, 2016
- Sep. 15th 2016
- Jan. 15, 2017
If you want to pay in 100% of your 2015 taxes, you are done with your estimate calculation and you can pay online: www.irs.gov/payments
That wasn’t too hard, was it?
Uh, wait. What if it is my first year in business?
Well, then we have to do a bit of math or use a friendly app. Each quarter you will need to pull your net profit from your accounting software(if you don’t have an accounting software, please talk to an accountant), and you will need to calculate your tax on that net profit.
You can either do the math yourself, or there are various apps out there that will do it for you:
- Tax Calculator by TaxSlayer – Apple App Store, Google play or Web App
- Total Tax Insights by AICPA – Web App
I suggest using one of the apps if you don’t want to learn the details. If you do want to learn the details check out 2016 Form 1040-ES.
As always, please consult your tax advisor.
TL;DR: Pay in 100%(110%) of your 2015 taxes, or use an app to calculate your taxes for you. Better yet, get a tax advisor.
