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quarterly tax payments

Manage Your Quarterly Tax Payments Using These Methods

May 24, 2016

For many, tax season is not the only time to make tax payments. Those making estimated tax payments, such as freelancers and the self-employed, may be required to pay taxes each quarter of the year. The first quarter for 2016 fell on April 18, and the following quarters fall on June 15, September 15, and January 17, 2017. Not making tax payments on time can lead to penalties and interest. To manage your quarterly tax payments, U.S. News shares these tips:

Budget Using Percentages

Budgeting plays a major role in your ability to save for taxes. Often, self-employed workers have income that ebbs and flows, which makes budgeting a little difficult. Many self-employed professionals find that budgeting with percentages works better with variable income than does a traditional budget.

With this method, you assign a percentage of your income to all expenses (such as taxes, housing, bills). Every time you receive a business payment, no matter how big or small it is, you allocate the income to different areas of your budget using your percentages.

For example, if your budget for taxes is 30 percent, you’d immediately put 30 percent somewhere safe each time a check comes in.

Separate Your Personal and Business Accounts

It’s important to keep separate accounts for personal funds and business funds even if you’re a sole proprietor. Commingling money is a recipe for disaster when it comes to estimated tax payments. It’s just too easy to spend the money you should be saving for taxes when it’s sitting pretty in your bank account.

Open up a business account and deposit all money earned from your business there first. Then reference your budget to distribute money to your personal accounts. Keep money for taxes and other business expenses in the business account so it doesn’t get touched.

There are plenty of online banks where you can set up your business account for free. Look for an account that has no maintenance fees, requires no minimum deposit, and has FDIC insurance.

Mark Your Calendar

Put a note in your planner to remind yourself of these tax-payment deadlines:

    • April 18, 2016
    • June 15, 2016
    • September 15, 2016
    • January 17, 2016

You can make tax payments with your bank account using IRS Direct Pay. Paying with a credit card or debit card is possible through an IRS-approved payment processor, although fees may apply. You can also use Form 1040-ES and mail a money order to the IRS. This tax worksheet includes step-by-step instructions on how to calculate estimated tax payments as well.

Before using any payment method, it’s a good idea to work through the tax form. You may even want to hire a tax advisor to help you the first time around. If you don’t pay enough before each due date, you can get hit with a tax penalty. That’s a cost you want to avoid.

Save Your Payment Records Somewhere Safe

The IRS gives you a payment confirmation when you pay online. You can also save the transaction page from an approved payment processor if you need to pay with a credit or debit card outside of the IRS website.

Store each payment record somewhere safe on your computer or external hard drive. You’ll need these records to file your tax return at the end of the year. If you misplace payment confirmations, you can call the IRS to get a balance on your account.