As an independent worker, consultant, or freelancer, you’re responsible for paying your taxes throughout the year, not just in April. And with the recent increase in the IRS penalty for underpayment, even a small miscalculation could cost you big.
Here’s the scoop:
- Bad news: The IRS penalty for underpaying estimated taxes jumped from 3% to 8%. That means even a $1,000 underpayment could lead to an $80 penalty!
- Good news: There are ways to avoid these fees. You can stay penalty-free by paying at least 90% of your estimated tax liability through withholding or quarterly estimated payments.
Important Update:
We recently learned about a crucial update to the estimated tax payment calculations. If you have a low-income year followed by a high-income year, consider paying 100% or 110% of the prior year’s income tax to keep your estimates lower and avoid a large balance due in April.
Here’s how to stay on top of your taxes and avoid a springtime surprise from the IRS:
- Use the IRS Withholding Estimator: This free tool helps you determine how much you should pay throughout the year.
- Adjust Your Withholding (if possible): Talk to your employer about tweaking your W-4 form to ensure you pay enough upfront.
- Make Quarterly Estimated Payments: Don’t wait until April to reconcile! Spread the tax pain throughout the year.
- Stay on Top of Your Income: Track your freelance gigs, bonuses, and investments, so you know exactly what you owe.
Most importantly… Don’t be afraid to consult a tax professional if you’re overwhelmed. Click below to schedule your FREE tax assessment now!
Forward this newsletter to your fellow gig workers, freelancers, and anyone else who might be unwittingly heading for a tax-time surprise.
Happy New Year!