Death and taxes are the only things in life that are inevitable. You can defer your tax, evade or avoid it, but sooner or later, you will pay it, one way or the other. Employees never have to worry about paying their taxes, just filing their returns. After all, the employer has the responsibility of computing and withholding income tax on behalf of the government. Self employed individuals who work as freelancers, however, have to calculate and pay their taxes. They also have to file their own returns.
Tax Tips for Freelance Writers
Freelancers normally earn an irregular monthly income. For instance, a freelancer may earn a substantial amount of money one month and fail to make any money the next. The annual income may also differ from one year to the next. For this reason, freelancers usually pay estimated tax every quarter. Tax is usually calculated using the applicable tax rate for the previous year.
It is important to note that if a freelancer did not make any money the previous year, they do not need to pay estimated tax. Similar, freelancers who owe less than $1,000 in taxes do not need to pay quarterlies. Estimated taxes are usually paid through form 1040-ES. Paying estimated tax helps taxpayers to avoid heavy penalties for late payment of income tax.
To avoid penalties, freelancers have to pay tax according to the rules outlined by the IRS. For instance, if last year you owed $4,000 in income tax, you should pay $1,000 every quarter. Any deficit or overpayment can be settled at the end of the financial year when filing returns. Overpayment can be claimed as refund, while any shortage can be bridged through cash payment to the tax authority.
If at the end of the financial year you would have paid 90% of your tax bill, your tax bill is less than $1,000, or you paid 110% of your tax bill if your adjusted gross income was over $150,000, you will not suffer any penalties. According to Your Digital Publishing Cheat Sheet, you should pay your quarterlies before April 15th, June 15th, September 15th and January 15th.
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