Alleviate Quarterly Estimated Tax Burden By Paying… Monthly?

http://www.freelancewritinggigs.com/2010/06/alleviate-quarterly-estimated-tax-burden-by-paying%e2%80%a6-monthly/

Quarterly estimated taxes are coming up next Tuesday. Honestly, I don’t really like to think about emptying my pockets for Uncle Sam until I absolutely have to, but paying quarterly taxes in April, June, September and January Is just a sad fact of life for we poor, suffering freelance writers.

I have been in the bad habit of letting my tax burden pile up, and paying the entire amount that I owe right on the due date. On one hand, this allows me to keep my money in my pocket longer, but on the other hand, I have four massive bills to dread every year (not to mention annual income taxes).

So, starting this quarter, I have decided to turn over a new leaf and start paying my quarterly estimated taxes monthly.  Here are the pros and cons of this (possibly insane) course of action as I see them:

The Pros of Paying Quarterly Estimated Taxes Monthly

  • Paying quarterly estimated taxes monthly breaks up the tax burden. There’s less chance of failing to plan for January 15th, April 15th, June 15th or September 15th and suddenly finding yourself in financial crisis.
  • You can also inoculate yourself against penalties. If the IRS finds that a sole-proprietor hasn’t paid her full complement of taxes over the year, they’ll charge interest and a penalty.
  • Filing monthly is also fairly easy these days. The IRS gives us Form 1040-ES, but it’s set up with only four, quarterly vouchers. Nowadays, with electronic filing through the Electronic Federal Tax Payment System, you can pay your federal taxes just like you’d pay your other bills online.

The Cons of Paying Quarterly Estimated Taxes Monthly

  • The money you pay out in taxes early could be sitting in an interest-bearing account making money for you, not Uncle Sam.
  • Something might change with your business. You might decide to throw in the towel, or maybe your industry self-destructs. Suddenly, your income is much lower than you expected for the year, but you’ve already paid far too much in taxes. You’ll get the overpayment back as a tax refund, but that isn’t until you file your annual income taxes after January 1st.

For now, I’m going to stick with the monthly plan. How about you? Do you suck it up and shell out quarterly estimated taxes four times a year or go a different route when it comes to quarterly estimated taxes?

Comments

  1. Why not just keep it in an interest-bearing account, like something free from Ally? You get the interest instead of the IRS, but you’re still setting aside the right amount monthly.

  2. I pay four times a year, and put a part of every check in a savings account. That way, in my mind, that money is already separate from the money I’ve “made” so it’s not as hard to part with!

  3. Very good topic, something I’ll have to think about. I’m used to quarterly, but it is a big pain. Thanks!
    Erik Hare´s last blog post ..Innovation

  4. When I had a schedule C, 18 years ago (company is has been a full C corporation since), I filed quarterly.

    Yes, it was a pain, but I think monthly kills cash flow, which can be critical to a small business. Even if it’s just a couple of days (you get a payment a few days before quarterly taxes are due, enabling you to use other funds you have set aside), having cash enables one to take advantage of sales, discounts and pay bills before they become past due (with additional charges).

  5. I didn’t even know you could do that! I sock a huge piece of every payment away in another account – but it still hurts. :) Thanks for tipping me off!
    Angie Papple Johnston´s last blog post ..Are Freelance Writers Valuable?

  6. I’ve said this a million times and for 3 years it’s been fine with my acct and the IRS: we just have my husband increase his withholding enough that my estimate is ZERO and officially, you’re supposed to report that ZERO too, but I never have.

    If you file jointly, the IRS sees you as one tax entity anyway.
    allena´s last blog post ..New Magazines- Risky Freelancer?

  7. I agree with Becky … put a percentage of each pay cheque into a no-fee savings account (I use ING). I view that as not my money, and I receive a small amount of pleasure from making a little interest on it before handing it over. Also, I believe the charge for using electronic payment to the IRS isn’t cheap (I send paper cheques to avoid paying it. So if you make monthly payments, not only are losing out on potential interest for yourself, but you’re costing yourself more in fees. That would bother me too much! LOL

Speak Your Mind

*

* Copy This Password *

* Type Or Paste Password Here *


CommentLuv badge

Content Freelance Writing Gigs
FWJ is read by many thousand readers every day. We offer a free weekly newsletter with all the top stories - come join the community!