The process of filing taxes might be difficult for someone who works for himself or as a freelancer. When it comes to making tax payments and submitting returns late, the IRS has tight guidelines. The interest and penalties that result from making late tax payments are a big worry for those who are self-employed. In-depth discussion of this subject and suggestions for how freelancers might optimize tax savings while avoiding unpaid invoices are included in this article, and how using a quarterly tax calculator can help freelancers.
Late payment of self-employment taxes
All throughout the year, self-employed people must pay taxes. In order to achieve this, you may make estimated tax payments, which are ordinarily due every three months. The tax return will be updated as the year goes on with real income and spending. If the projected payments fall short of fully satisfying the tax obligation, further payment will be required at the time of filing.
A person who is self-employed may be subject to fines and interest charges if they do not submit or pay their taxes on time. Before paying taxes, it’s critical to comprehend the IRS’s stringent requirements regarding late payments.
Interest charges on freelancer taxes
One of the biggest consequences of paying taxes late is interest. The IRS assesses interest on the outstanding sum from the return’s due date to the payment date. 3% annual compounded interest is the current rate. Over time it can rapidly add up.
Let’s take the case of a freelancer who owes $10,000 in taxes but doesn’t pay it on time. It may not seem like much, but if they pay one month late, the interest would be almost $25. On the other hand, if they pay six months later, the interest fee would be close to $150, which is a far larger sum.
It is important to remember that even if the tax return is submitted on time, interest costs are not exempt. Interest fees will still be assessed even if the return is submitted on time but the payment is made later than expected.
Penalties for IRS late tax payments
For self-employed people who don’t pay their taxes on time, the IRS now assesses late payment fines in addition to interest rates. The penalty usually amounts to 0.5% of the unpaid tax, every month or portion of a month. This fine might be as much as 25% of your total amount.
If a freelancer owes $10,000 in taxes, for instance, and doesn’t pay them on time, they will incur a penalty of $50 each month until the whole amount is paid. Until the tax is fully paid, this penalty will be applied, with a 25% cap.
It’s important to understand that the fine for late payments and late filings are two different things. There is a supplementary penalty of 5% of the unpaid tax, each month or portion of a month, for freelancers who fail to submit their tax returns on time. Additionally, the maximum penalty is 25% of the entire amount of taxes payable.
Deadlines for Paying Your Self-Employed Taxes
As was previously noted, tax payments are expected from self-employed people all year long. The following dates apply to each estimated tax payment due each quarter:
• April 15: For earnings from January 1 to March 31
• June 15: For earnings from April 1 to May 31
• September 15: For earnings from June 1 to August 31
• January 15: For earnings from September 1 to December 31
For those with a different fiscal year, it’s crucial to know the dates vary. There may be fines and interest charges if projected tax payments are not made on time.
Options for Paying Taxes as a Freelancer
There are a variety of methods available to self-employed people for paying taxes. These are the most typical choices:
• Electronic money transfer: The IRS prefers this method of paying taxes. The Electronic Federal Tax Payment System (EFTPS) is the method for making payments.
• Credit or debit card: You may use a credit or debit card to pay your taxes as well. To compensate for this service, the payment processors levy a convenience fee.
• Money order or check: These payment methods are also available. The payment voucher and the payment should both be included with the payment, which should be payable to the US Treasury.
Lastly, it is important for independent contractors and freelancers to be mindful of the interest and penalties that come with paying taxes late. In order to avoid these fines, it’s crucial to pay estimated taxes on time and submit tax returns throughout the year. Freelancers may optimize their tax savings and prevent expensive fines by being aware of the laws and standards governing self-employment taxes.
