Once a week, we feature a fantastic freelance-themed comic from the talented N.C. Winters. Why not also take a look at our comic archive?
N.C. Winters is always drawing. When he isn't making comics, doodling or working as a freelance graphic artist, he spends his time painting pretty pictures for galleries from his home studio in sunny southern California.
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This is EXACTLY my reaction. It was a nice feeling to make more than the year previously, but I am learning that I need to make even MORE to be able to live the way I currently am and afford taxes at the same time.
Thank you so much for putting this one up! It hit right on the spot
So this is a valid concern for a guy who isn’t yet freelancing. It sounds like quarterly taxes would make a lot more sense then not even thinking about the yearly taxes and getting swamped when it comes.
Can someone point me in the right direction on how to set this up?
This is exactly how I felt this past week. Great that I made more money, but it just sucked that I had to give so much of it to the blood-sucking federal government. Time to look into an LLC…
I have always paid taxes quarterly as a freelancer (thank you, dear accountant!). Like Courtney, I’m thrilled to see my business is doing so well, but it is very difficult to let go of that money. I always remind myself though that it could be worse – I am from Denmark where taxes are much, much higher than here, so I have it pretty good.
An LLC wouldn’t reduce your tax liability at all, and if you’re in states like California you have to pay 800 dollars a year to maintain it, as well as pay taxes on the GROSS earnings. Yikes!
Expensive, but you don’t have to register your business in the state you live in. I am registered in Delaware as an LLC, it’s only 250/year to maintain and Delaware is great for businesses.
TJ, it’s as simple as using EFTPS to pay quarterly.
However, you should consult a CPA or the like when making the transition. It helped me get going and was worth the few hours of pay I spent on them.
Love the comic!
I actually avoid this issue as much as its possible, I did the math on how much of my invoices are being used for taxes (for me it’s .58% of the total invoice including taxes) and I transfer that to a business savings account for every invoice that comes in separately so I can keep track of them easily.
By the time I have to do taxes it wont matter if its quarterly or yearly, I made sure never to touch the money I set aside for our friends at the IRS so it never ends up being a problem. Small bonus is that at the end of the year I got a fair amount of interest because the money is on a savings account
This is it exactly. I transfer a full 25% of every payment over to business savings to cover taxes and the other withholdings that an employer would take out of a pay check. Anything left over after taxes are paid gets routed to long term personal savings.
What Joshua said. Also… in the US, tax is owed to the govt as it is earned. You can’t just settle up yearly and not get slammed because the IRS views that as them loaning you money. If you owe the IRS more than $1000 and didn’t pay at least 100% of last year’s tax owed, you will get harsh penalties. The way to handle this is easy… take last year’s tax, divide by 4, and pay that quarterly. Pay a little more if you think you are going to owe more. When you’re self-employed you’re paying 15% on your earnings no matter what even if you don’t make enough to pay income tax. Learn taxation before it bites you on the a**
That’s not necessarily true. Yes, you are supposed to pay business taxes quarterly. But the taxes are not due as they are earned. Individuals can decrease or increase their withholding as they see fit and not pay a penalty as long as you pay your taxes on/by April 15th.
You’ve got it backwards, when you overpay taxes in withholding you are actually loaning the government money for free.
You are right about the 15%, but that’s for SS, Medicare/Medicaid. The difference being the self-employeed pay both halves while the traditionally employeed employers pay half.
If you are freelancing and also have a full-time job you don’t have to file quarterly:
But I’m not a tax attorney so you should talk to one about your specific situation before deciding whether to pay quarterly.
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