Buzz
As a freelancer, you're likely aware of the need to pay estimated taxes quarterly (if not, here’s a primer). But what happens if your calculations aren't quite right? Forbes outlines the specific rules for these payments.
There are online calculators to help estimate your taxes, but to avoid penalties, Forbes explains the level of accuracy required in your estimates:
This is where the Safe-Harbor law comes into play. In simple terms, you must aim for either 90% of the current year's tax (even if you don't know the exact amount beforehand) or 100% of the previous year's tax return to avoid penalties. If you earn more than $150,000, the requirement rises to 110%.
To be on the safe side, it’s probably best to go with 100% of your prior year's return, especially if your income fluctuates. Once you start filing as a freelancer, the IRS conveniently sends 1040-ES payment vouchers to make it easier, or you can pay online through Direct Pay. For further details, check out the full post on Forbes below.
Image by Paul Kunitsky
