Self-Employed? This Simple Move Could Help You Avoid IRS Penalties

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It’s an easy step to take. 

One of the challenges of being self-employed is not having taxes taken out of your earnings. You’d think that would be a good thing, because it means getting your hands on your money sooner. But in some ways, it can be a bad thing, because it’s on you to make sure you’re paying the IRS on a quarterly basis. And if you’re late making your estimated tax payments, you could face penalties.

That’s why it pays to put those payments on autopilot. Doing so could not only spare you from penalties, but also, help you better manage your money.

An easier way to deal with tax payments

The IRS insists on being paid as you earn money. That’s why you can’t just ignore your estimated quarterly tax payments and pay the IRS in one fell swoop when you file a tax return.

Meanwhile, the IRS sets a deadline for when quarterly tax payments are due. This year, those payments must reach the IRS by:

April 18, which covers the first quarter of the yearJune 15, which covers the second quarter of the yearSept. 15, which covers the third quarter of the yearJan. 16, 2024, which covers the fourth quarter of the year

Now, you’ll notice that these payments aren’t spaced out completely evenly. There’s only a two-month gap, for example, from when your payments are due for the year’s first and second quarter.

And if you’re wondering why your final payment isn’t actually due in 2023, but rather, in early 2024, it’s because the IRS recognizes that you might get some payments very late in the year. And you might need time to reconcile those so you can calculate your payments accurately.

It’s important to be timely with your estimated quarterly payments and meet these deadlines. But you might run into issues with forgetfulness. Or you might run into financial issues. That’s why automating your payments is a good bet.

To do so, a good bet is to open a separate bank account where you transfer money from your earnings every month. That sum should suffice in covering your tax bill each quarter.

This setup will help ensure you aren’t late with your payments. But it might also help you better manage your money.

If you’re moving funds into a separate account to cover your quarterly tax payments, you won’t be tempted to spend that money. Rather, you’ll know it’s reserved for the IRS.

Make your situation work

A lot of people who are self-employed get tripped up by tax obligations. Setting your quarterly payments to autopay could help you avoid penalties and stress.

If you’re not sure how to calculate your quarterly tax payments, your best bet is to consult an accountant. They can look at your total income picture and help you arrive at the most accurate estimates.

Keep in mind that your estimated payments might have to change over time as your income changes. But an accountant can help you navigate that situation and get those numbers right.

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