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?