Caught up in the thrill of freelancing, you crank out project after project. You’re free of the managerial oversight and workplace distractions that come with full-time employment and office life. Finally, you’re the boss — and the control feels so good.
But one evening at a networking event for freelancers, you overhear a conversation about paying quarterly taxes. Wait, quarterly taxes? What are those? Slightly panicked, you do a quick Google search. It’s true: Freelancers owe taxes every quarter — not just annually.
Shocked by this unexpected financial task — and how quickly the apparent third deadline (September 15) is approaching — you start to experience the five stages of grief.
“I have to file taxes four times a year now? And I thought once a year was rough. This can’t be right.”
Welcome to the tax caveat of freelancer freedom. The quarterly tax payments are due in April, June, September and January. The good news if you’re new to freelancing and had no freelance earnings during the previous year, you’re exempt from paying quarterly taxes until next year. For those of you paying quarterly taxes this year, the deadlines are:
April 18, 2017: First payment
June 15, 2017: Second payment
September 15, 2017: Third payment
January 16, 2018: Fourth payment
Why do freelancers have to pay quarterly? While employees have taxes withheld from their paychecks during standard pay periods, freelancers aren’t subject to withholding per job or per project. The IRS uses a quarterly schedule to gather taxes from freelancers that would otherwise be taken automatically from a paycheck on a rolling basis.
“I started freelancing to get more freedom in my life and work, but now I have a new financial burden.”
Sure, it’s an added annoyance that takes time and effort to figure out, and it may cause a lot of frustration in the beginning. But direct your anger toward uncovering the ins and outs of paying quarterly taxes. The IRS has a form to help you figure out how much you owe: the 1040-ES. You can also use the IRS chart to find out if you do need to pay estimated tax.
“Maybe there’s a way around it. I’m going to ask around just in case.”
Turn to a professional if your angry thoughts are spiraling toward tax evasion. Start with the IRS resources above to understand your tax obligations, and then seek help from a tax professional to confirm if you qualify and the amount you owe. The bargaining stage of grief may get you thinking craftily, but failure to pay quarterly taxes can result in payment penalties.
“I’m doomed to dealing with endless and confusing money management. I’m sure I’ll forget something and end up owing even more.”
Before you resign to negativity, think practically about ways stay on track, just like with learning any other billing system or cycle. The quarterly cadence forces you to review and monitor your earnings consistently. Set calendar reminders, or even schedule quarterly meetings with a financial consultant or freelance friend to keep yourself accountable.
“I do love all the perks of freelancing, so I guess I can deal with this. It might not be that bad after all.”
Now that your emotions about the cons of paying quarterly taxes have settled, you can recognize the pros. The first few times could naturally be overwhelming, but you’ll get into a routine and may even appreciate the regular financial reviews. Eventually, you might even come to view it as a benefit instead of a burden on your freelance career.
The next quarterly tax deadline is September 15, 2017. After all this, you’re probably thinking that there should be a better way. We’re working hard on this, take a look at our SetAside beta and let us know what you think.