The Importance of Paying Estimated Taxes When You Work as an Independent Contractor

25 March 2020
 Categories: Finance & Money, Blog

If you work from home as an independent contractor, you will probably receive 1099s at the end of the year. A 1099 form states the amount of income you earned from a specific company, and it reflects earnings that you must pay taxes for. You might receive one 1099 or many, and you must report these on your taxes. If you want to avoid owing a large tax bill at the end of the year, you should consider sending in estimated tax payments.

What Are Estimated Tax Payments?

As a citizen of the U.S., you are required to pay a portion of your income to the federal, state, and local governing authorities. You can pay these at once when you file your taxes in April of each year, or you can spread them out throughout the year. If you work for a company that gives you a paycheck, they will take the taxes out for you and pay them to the correct organizations.

If you work for yourself and receive your income through 1099s, the companies you work with will not withhold taxes. Because of this, you are required to pay the taxes yourself. It is impossible to know the exact amount you will owe for your taxes, but you can estimate it. Estimating your taxes allows you to pay part of your tax liability once each quarter.

Why Is It Essential to Pay These?

Paying estimated taxes is essential for several reasons:

  1. It's more affordable — It's usually easier to pay taxes over time instead of all at once.
  2. You'll avoid penalties — When you do not pay your taxes regularly throughout the year, the IRS charges penalties and fees. If you want to save money, you can do so by paying estimated tax payments.

How Can a Tax Firm Help You Prepare for Your Tax Liability?

A tax firm can help you with this by preparing your taxes for you. Once they do this, they can set up the estimated payment schedule for you, and they will often provide coupons for you to mail in with these payments.

Working from home as an independent contractor provides a lot of incredible benefits, but it also requires planning for your taxes. To seek help with this, talk to a financial advisor that offers tax services, such as Ruben D. Rosas, Inc. Accounting & Tax Solutions. They can set you up on a plan that helps you keep up with your tax liability.