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Money Management

How To Keep The IRS Happy As A Freelancer

If you’re a freelancer or business owner, your tax situation will be more complicated than the typical 9-5 employee’s.

Taxes are a simple fact of life and you’ll have to pay your taxes either on your own or with the help of an accountant or tax professional. If you’re planning on dealing with taxes yourself, there are a few things you need to keep in mind.

Regardless of your form of income, if you’re making more than $12,000 per year in the US, you’re going to have to deal with the IRS. If your income isn’t entirely employment income, you’re going to have to take some extra precautions. If you’re self-employed, have a side-hustle that’s making some serious money, or if you have a low withholding rate on your paychecks, this applies to you. If any of the above describes your situation, you might be required to pay taxes four times per year instead of just once. However, calculating your quarterly estimated taxes isn’t as hard as it sounds. You can use cloud accounting apps like QuickBooks to make the process simple.

The hard part about paying quarterly tax rates is keeping up. You’ll want to keep your bookkeeping up to date, so a cloud app is the most efficient option. You’ll also want to generate a profit and loss statement (P&L). Fortunately, most tax accounting apps can also generate P&Ls quickly and easily. This is where the annoying part comes up; you’ll need to calculate your tax liability. You’re likely aware of how annoying it can be to calculate your final tax return, but quarterly taxes are fortunately much simpler. Using tax apps can help here, but make sure that you estimate higher rather than lower if you’re not entirely sure of your tax liability. Overestimating your taxes is fine, and the IRS will return any excess funds to you. Underestimating, however, will not be taken well by them and you may even have to pay penalties if you mess up.

Paying quarterly taxes can be annoying, but it’s necessary for many Americans. Planning ahead, staying on the ball, and using the right tools will make the process simple and easy to repeat as time goes on.

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