Three years freelancing and I still feel like an idiot every time estimated tax season rolls around
Like I know I’m supposed to set aside “around 25-30%” but then someone mentions self employment tax and I panic and open like 6 tabs and close them all and just… transfer a random amount to savings and hope for the best
Got hit with a $600 penalty last year because I did it wrong. not the end of the world but annoying enough that I told myself I’d figure it out properly this time
so genuinely — what do you guys actually do? is there something simple that isn’t a full accounting subscription? all I want is to put in what I made, what I spent, and have something tell me what I owe. feels like that shouldn’t be a $30/month problem
Finally admitted to myself I have no idea what I’m doing with freelancing taxes
byu/RubPsychological5243 intax
Posted by RubPsychological5243
4 Comments
What line of business are you in?
You have several options available: you can pay someone to do it for you or you can do it yourself. The perk of doing it yourself is it only costs you time. Basic step by step for doing it yourself
First determine your safe harbor amounts. Based on income level, if you meet X% of the prior year tax liability each quarter you generally won’t have any penalties (even if you owe)
Second, you keep track of your income and expenses each quarter. Once the quarter is over, you estimate your tax liability. That’s different for everyone, but you can use free tax software or you can use Excel. If your freelance work is pretty stable/consistent, you might annualize that number; if it’s “lumpy” (big ups, big downs) it kinda depends. You check step 1 safe harbor. Then, compare the estimated total tax to what you’ve paid in so far. The difference (if estimated > paid) is generally what you should pay
I understand people being confused the first year but after that, it’s pretty simple. I pay 100% of the prior year in estimated quarterlies. If your AGI is over $150k make it 110%.
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