Since being self-employed, I have learned a lot of amazing things that have helped me develop a system for setting up my quarterly tax payments. It wasn’t that easy at first and it definitely took some time but I am truly happy I learned the ins and outs of how to prevent a BIG tax bill. Below are my TOP 3 ways to get ahead of the game and be prepared for tax season while being self-employed.
1. Make Quarterly Payments: This one is HUGE! I learned the proper way to send in quarterly payments a little late but it’s definitely one of the most important things to learn about and do while being self-employed. One year, I waited to send in my quarterly payments and ended up with a tax bill of $2,800 at the end of the year. Can you say, “YIKES”!! I definitely learned a valuable lesson from that and I currently apply everything I learned to help me stay on top of my quarterly payments. While being self -employed, you will be required to send in quarterly payments or pay all of what you owe at the end of the year during tax season. How much you will have to pay depends on a lot of things such as: what state you live in, how many dependents you have and more. But as an estimate I would put aside about 25 to 30% of what you make out of each check. When I started making quarterly payments it made my life much easier and I didn’t owe the IRS at the end of the year. #SCORE! Read more about Self Employment taxes and Quarterly payment options here: Self Employed Tax Center
2. Save Everything: This is another HUGE one! Make sure to save all your receipts because saving all your receipts will help you in the long run and help manage your time when it’s time to get your taxes done at the end of the year. I like to keep all my documents and receipts close to each other in a binder because that helps me stay organized. I keep a list of everything that may have cost me out of pocket for my business and from independent contractor jobs throughout the year.
3. Stay Organized: When I first took on my independent contractor sub teaching job I signed up for a software program called QuickBooks! QuickBooks does the math to help you set money aside & easily pay estimated quarterly taxes. The program also puts expense tracking on autopilot. They categorize expenses into correct Schedule C categories. Basically, they do a lot of the work for you which makes it easier to stay organized. If you are not really an online type person, try setting up a binder just with business related stuff and categorize everything to stay organized.
What are some ways you prepare for tax season while being self-employed or an independent contractor?