Estimated Quarterly Tax Payments are a simple way to “self tax” yourself throughout the tax year so you do not end up owing a huge amount on April 15.
An estimated tax is for people who earn income that hasn't had taxes withheld.
Most likely if you are a freelancer you earn “untaxed” money, so you might consider paying estimates to lower the tax burden at year end.
In a perfect world, the IRS thinks you earn money every quarter in equal amounts, so that's why the system is set up for you to pay taxes owed in 4 equal installments. But, as you likely already know, earning money in equal chunks throughout the year is rarely a thing.
The key in determining what amount to pay and when to pay depends on how your income is being received. If you get a $10,000 check, and have minimal expenses, you will owe quite a bit in taxes due to the self employment tax + taxes on ordinary income.
The 2020 dates for which estimated quarterly taxes are due are:
- Q1 Deadline is April 15, 2021
- Q2 Deadline is June 15, 2021
- Q3 Deadline is September 15, 2021
- Q4 Deadline is January 15, 2022
Untaxed money on average owes about 35% in federal taxes, so you need to determine (say monthly) how much profit you made.
Then every 3 months add up your income, and figure out 35% of that amount and send to the IRS via a 1040ES, which is the payment voucher. Or pay online here.
Do not forget to include state and local estimated payments as well, sent to your respective state. A few commonly used state tax percentages are 8% for NYC residents and 5% for CA residents. This percentage of profit should be sent to NY, CA, or your state to cover your estimated state/local tax for each quarter.
If you're still confused, please reach out to email@example.com for help in setting up a consultation, individualized for your situation.