The next estimated tax deadline is coming up in short order on September 15. If you’re one of the many freelancers who tend to put estimated tax payments on autopilot, or never even get them off the ground, it’s time to take the wheel again and make sure that you remain in control of your tax situation. Looking at your estimated tax payments now is important for several key reasons:
- You can correct any shortfalls you may have from underpayments in the first two quarters of the year and avoid tax penalties.
- You can stop tying up too much of your income in a tax-free loan to the government by correcting any overpayment you may be making.
- You can adjust your tax payments to accommodate for any changes in your situation which may have occurred since you first calculated your estimated tax rate.
- If you are behind on estimated tax payments you can take action to rectify the situation and reduce penalties and fines in the process.
Don’t fly blind when it comes to your estimated taxes
While it’s certainly preferable to be ready to cut checks for federal and state estimated taxes prior to the deadline rolling around, it’s wise to take a look at the factors influencing your estimated tax payments periodically to make sure you don’t need to make adjustments for changes including:
- A new employment status. If you’ve gone from a full-time job to full-time freelancing, or you’ve decided to get a part-time job to supplement your freelancing and you’ll get a W-2, you’ll likely need to change your tax payments. If your change in employment status includes the need to complete a W-4 for tax withholding from an employer and you’re still freelancing as well, then you definitely need to make some adjustments to your estimated tax payments. For those who have just changed their tax-paying status to self-employed, you need to look at how much estimated tax you need to pay. Do it now to avoid a tax shortfall next tax season.
- Life changes. An estimated tax check-up is also necessary when certain life events take place. A change in your marital status, the birth of a child or the purchase of a new home, or changing your business entity type will typically precipitate a change in the amount of taxes you owe. If any of these situations apply to you, you’ll need to adjust accordingly and you may be best off getting some input from a tax professional.
- Changes in your health insurance. If you have health insurance from the Health Insurance Marketplace (HIM) and you receive advance payments of the premium tax credit, you need to notify the HIM when changes in your income or family size occur, or when you move out of the area covered by your current Marketplace plan. Reporting these changes will not only ensure that you get the correct type and amount of financial subsidy, it will also a) prevent you from having to pay back any overpayments later and b) help you get a better handle on any related tax deductions or adjustments you need to make.
Don’t delay action if you have delinquent estimated tax payments
If you have come up short in the past when it comes to paying your estimated taxes, now is the time to take steps to rectify the situation. The sooner you do, the less tax turbulence you’ll experience later. Even if you don’t have the money to pay your estimated taxes by September 15, it is better to look at implementing one of the following options than it is to keep piling up tax bills, which will leave you subject to non-payment fines and penalties from the IRS.
With a few weeks to go until the next estimated tax deadline, now’s the time to take your estimated tax payments off autopilot—or get them airborne if they aren’t already. Doing so will allow you to head off tax penalties, eliminate overpayments and reduce the risk of tax surprises before year-end. This will put you back in control well before tax time comes around again.