When it comes to income tax, the end of each year gets independent contractors thinking about last-minute strategies to reduce income. After that, April 15 looms as the big deadline.
So it’s easy to ignore Jan. 15, one of four deadlines for paying estimated quarterly taxes. Many owner-operators think the quarterly payment is optional, since it doesn’t get the fanfare of April 15, but they’re wrong.
Anyone who gets income that is not subject to withholding is required to ante up quarterly if you expect to owe at least $1,000 in taxes for the year. Fail to do so and the Internal Revenue Service will charge not only a penalty, but also interest on the unpaid amounts.
Your accountant can help you with the estimation and filing, but if you want to do it yourself or simply understand the basics for keeping the IRS at bay, here they are:
- Use Form 1040-ES to pay your estimated tax. This applies if you are filing as a sole proprietor, partner, S corporation shareholder or a self-employed individual.
- Pay a fourth of one of these two amounts: 100 percent of what you paid in taxes last year or 90 percent of what your records indicate you will owe for 2014.
- Heed the other deadlines for filing quarterly estimated tax: April 15, July 15 and Oct. 15.