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It’s a date you don’t want to gloss over.
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There are many benefits to being self-employed. Under that set-up, you can often do your job from anywhere, set your own hours, and enjoy the freedom of not having to report to a boss all the time.
But there are downsides to being self-employed, too. Not only do you not always get a steady income to look forward to, but you don’t get the benefit of having taxes deducted from your earnings directly. Instead, it’s on you to pay the IRS what you owe on a quarterly basis.
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Now at this point, ideally, you’ve already sent the IRS three separate estimated payments to cover your tax liability for 2022. But soon, you’ll need to gear up to send in your fourth payment, so it’s important to keep the deadline for that in mind.
Mark your calendar for mid-January
You might assume that your fourth quarter estimated tax bill is due on Dec. 31. But actually, you get until Jan. 17 to send the IRS that money.
Why is that the deadline? The IRS recognizes that self-employed individuals might get paid for work at the very end of the year. And if you’re only just getting paid on some outstanding invoices on Dec. 31, it’s not really reasonable to expect you to be able to calculate your associated tax bill by that date.
As such, the IRS gives people who are self-employed a couple of weeks to reconcile their books for 2022 and make their final payment. But it’s important to send in that payment by Jan. 17 to avoid being penalized.
What happens if I send in too small a payment?
The tricky thing about estimated quarterly tax payments is that they’re just that — estimates. And even if you work with an accountant, you might still end up owing the IRS some money when you file your 2022 tax return.
Whether that will result in a penalty will depend on the amount you owe. If it’s under $1,000, you’ll still need to pay the IRS that money, but you shouldn’t be penalized. Similarly, you can avoid being charged a penalty for underpaying your taxes by making sure to pay the IRS at least 100% of your previous year’s tax bill.
So, let’s say you pay the IRS a total of $20,000 in estimated taxes this year when you really owe $25,000. If you paid the IRS $18,000 in taxes last year, that $20,000 is more than 100% of what you paid for 2021. So it should be enough to help you avoid being penalized for that $5,000 underpayment.
Keep in mind that the IRS will work with tax-filers who can’t afford their tax bills in full. But if you’re self-employed, it’s really important that you keep extra money in your savings account in case your tax liability ends up being greater than anticipated.
It’s also a good idea to have an accountant help you estimate your tax liability. While doing so doesn’t guarantee that you won’t owe money, you might get closer to hitting the right mark if you use a tax professional.
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