April is a busy month for many procrastinators, everywhere.
- Get all your income and expenses organized.
- File an extension for your taxes.
- You might have forgotten step 2 and now you need to know what to do.
- Now it’s time to look to the future.
You’re organized now and you’ve got last year’s taxes out of the way. Now that you’ve got the EZ Accounting method and spreadsheet you can maintain organization and it will be easier to do your taxes.
For many people, you only have to do taxes once per year, by April 15th.
For many others, the government expects your tax payments more often.
Let’s take a look and see what you fall under.
You’re considered an independent contractor if you receive more than $400 of income at a trade which you intend to turn a profit on.
Normally, an employee of a business would have their income tax, Social Security, and Medicare withheld by their employer. Since you’re an independent contractor, that is not the case.
As a self-employed individual, or independent contractor, you are responsible for paying income taxes and self-employment taxes. Self-employment tax is made up of Social Security and Medicare taxes.
If you are self-employed, and you expect to owe more than $1,000 in taxes when you file your return, then the IRS requires you to make quarterly tax payments, but you don’t have to file except once per year, by mid-April.
So, how do you know how much to pay each quarter? You use the 1040 ES tax form.
If you do not pay enough tax through withholding and/or estimated tax payments to cover your tax liability, then you will be charged a small penalty by the IRS.
The tax penalty is calculated on your tax return, and added to the amount you owe (or subtracted from your refund).
Employees of Companies
If you are an employee, even of your own company, then you only need to file your individual taxes once a year by mid-April.
All businesses, no matter what operating structure (LLC, Corporation, etc), are required by law to file and pay employment taxes.
The business is to withhold both income taxes and Federal Insurance Contributions Act taxes from each paycheck.
The business is then supposed to file taxes quarterly and pay taxes based on the frequency of paying employees.