The first year I had to pay self-employment taxes on money earned from my photography work has been imprinted into my memory forever.
Starting a small business when you’re in college seems like a great idea, right up until those taxes come due. Of course, I had no idea at the time that small business owners and freelancers alike pay estimated taxes quarterly to the IRS.
Luckily, the process of submitting those payments has been simplified immensely over the years!
What is estimated tax?
For the uninitiated, the IRS states, “Estimated tax is the method used to pay tax on income that is not subject to withholding. This income includes earnings from self-employment, interest, dividends, rents, and alimony.”
Of course, not everyone in the United States is lucky enough to be able to pay estimated tax. The IRS outlines two situations on form 1040-ES for 2020 in which you might be required to pay estimated taxes:
- If you expect to owe at least $1,000 in tax for this tax year, after subtracting your withholding and refundable credits.
- If you expect your withholding and refundable credits to be less than the smaller of either 90% of the tax to be shown on your 2020 tax return or 100% of the tax shown on your 2019 tax return. Your 2019 tax return must cover all 12 months.
Most full-time freelancers and creative small business owners (photographers, designers, etc.) can expect to pay estimated tax.
Remember, estimated taxes are due before specific dates of the tax year. Here are the dates for 2020:
1st payment: April 15, 2020
2nd payment: June 15, 2020
3rd payment: Sept. 15, 2020
4th payment: Jan. 15, 2021
Estimated tax must be submitted to the IRS on our before these dates for penalties to be avoided.
How do I pay estimated taxes?
Luckily, the IRS has made it incredibly easy to pay your estimated taxes these days. Keep in mind that it’s always best to connect with a CPA or tax professional to make sure you and your business are on track for April. Here are a few methods for submitting those payments yourself.
Pay online (find it here)
The IRS offers an electronic payment option via their direct pay portal. This is by far the easiest, most convenient way to submit your estimated tax payments. Simply fill out the guided form and submit your payment with a checking or savings account. Easy peasy!
P.S. Don’t want to submit a payment using your bank account? Try this link to submit a payment via debit or credit card - just keep in mind that you’ll be charged an extra fee.
The IRS allows you to submit a payment directly from your mobile device by downloading the IRS2Go app. This brings up the ability to pay using Direct Pay (bank account) as well as with a debit or credit card (for a fee).
Pay over the phone
The IRS contracts with other businesses to provide payment options like paying via phone call! There are a few numbers that you can submit estimated tax payments to, but keep in mind that you’ll be paying those pesky processing fees.
Link2Gov Corporation - (1-888-729-1040)
WorldPay US, Inc. - (1-844-729-8298)
Official Payments - (1-888-872-9829)
Pay by check
Of course, if you’re not a fan of the convenience and ease of the internet, or you just want to feel a bit nostalgic, you can submit a payment to the IRS via the mail. Simply follow the directions on Form 1040 and include your check (or money order)!
Need help getting prepped for tax time? We've got you covered. Amarlo can handle your books and help get your finances organized so that you're always ready when it matters most.