If you’re self-employed, you probably set aside a little time each quarter for business planning, when you can develop new, exciting ideas on how to grow and reach your annual goals. But do you make time for tax planning, too? If not, you should start now. After all, tax planning is an important part of managing your income when you’re on your own — even if you’re doing it at the last minute. Luckily, it’s not too late to get your tax situation squared away. Here’s an overview of the dates, deadlines and quarterly milestones to aim for throughout the year.
Understand Your Business Structure
Your tax obligations will vary depending on how you file. Right now, you may be a sole proprietorship, an LLC, a partnership, an S-corporation or a C-corporation. A good practice during the first quarter of every year is to review how you file as a business entity, and decide if your status is still appropriate for your current situation.
Know When Estimated Taxes Are Due
As a self-employed individual, managing your estimated quarterly taxes is a big part of your overall tax planning process. Here are the 2018 deadlines to keep in mind:
- 1st Quarter: April 17, 2018
- 2nd Quarter: June 15, 2018
- 3rd Quarter: September 17, 2018
- 4th Quarter: January 15, 2019
These dates are the most important milestones to note each quarter, but remember that they shift slightly every year. In order to have the money on hand to send in your payments, you’ll want to consistently set aside a portion of your earnings so the cash is available when your taxes are due.
“Sock away extra money for estimated tax payments,” advises Cathy Derus, CPA and founder of Brightwater Accounting. “Depending on how you’re taxed, that should be 25 to 30 percent of [your] net income.”
Consider Switching Your Health Insurance Plan
Your health insurance might not be top of mind when it comes to tax planning, but it’s actually an important consideration. “If you don’t have an HSA, consider an HDHP,” explains Eric Roberge, a CFP and the founder of Beyond Your Hammock.
This high deductable health plan gives you access to a health savings account (HSA). The money you contribute to an HSA is tax-deferred — and both the earnings in the account and the money you spend out of it are tax-free if you use the funds on qualifying medical expenses.
“Open enrollment is November 1 through December 15, and it’s a good time to browse and see your options so you can enjoy tax-free growth within your HSA,” says Roberge.
Other Tasks to Complete Before the End of the Year
Many money moves you can make for tax purposes don’t have hard year-end deadlines. With accounts like SEP and Roth IRAs, for example, you have until the filing deadline in April to fund these accounts for the previous year.
But other accounts and actions require your attention before the clock strikes midnight on December 31. Keep the following in mind:
1. Open Your Solo 401k Before December 31
“If you’re considering opening a Solo 401k, you need to open it before December 31,” says Robert Farrington, founder of The College Investor. “It can take one to two weeks to process paperwork. Act now if you want to do it — but if you miss the deadline, you can still open a SEP IRA all the way through April 15.”
2. Consider Your Mortgage in Your Tax Planning
If you itemize, do you deduct your mortgage interest? “Think about making your January mortgage payment before the start of the new year,” suggests Dan Green, founder of financial education website Growella. “This tax-saving tactic is especially helpful to self-employed borrowers who have earned exceptional income in the current year and may earn less in the following year.”
3. Don’t “Spend to Save”
Before you go too crazy trying to spend money in an effort to reduce your tax bill, know that this strategy could backfire. “In a lot of instances, you can end up spending $100 just to get $25 back,” says Eric J. Nisall, a freelance tax expert. He also notes that for self-employed people in the growth phase, putting off spending for higher income years can give you more deductions to take when you really need them. “Just because you can deduct something doesn’t mean you should,” says Nisall.
Going to Miss a Filing Deadline? Ask for an Extension
Sometimes, a last-minute scramble just isn’t enough, and you find yourself close to missing a deadline. If you’re worried you may not make it this quarter, you can ask for an extension on filing your taxes — but make sure you’re still paying on time. As long as you file your extension by the tax deadline, you can avoid late filing penalties.
When it comes to taxes, freelancers don’t always have it easy. But with some thorough financial planning, you’ll be ready for that next deadline before you know it. Consider taking the time now to get that HSA or Solo 401k, and soon you’ll be breezing through your quarterly taxes.