As we find ourselves amidst the colorful hues of October, it’s not just the foliage and pumpkin patches that demand our attention, it’s actually tax time, too. This month serves as a crucial checkpoint for individuals who not only have a “regular” job, but might be supplementing their income with some side gigs, like Uber, DoorDash, or even a little moonlighting within the industry (yes, even us tax professionals have been known to do it!)
No sense messing around, let’s dive straight into the heart of the matter: fourth-quarter estimated taxes.
Why Are Estimated Taxes Important?
Estimated tax payments are the government’s way of saying, “We’d like a little bit of that freelance pie, please.” Jokes aside, these payments are vital for ensuring you’re up-to-date with your tax obligations, thereby avoiding unnecessary penalties or interest down the line. This has really come to light in the last decade, as the so-called “gig economy” took off and a LOT of employees who were picking up odd jobs got caught short with the Tax Man.
Due Dates and Calendar Markers:
Mark your calendars—the fourth-quarter estimated tax payment is due on January 15th of the following year. However, October is the optimal month to make crucial adjustments to avoid potential pitfalls. You already know that November and December are going to tap your budget, so a bit of planning now will make things a LOT easier than in the middle of the holidays.
Income Variances and the ‘Killer Year’ Phenomenon:
If you’ve had an exceptionally good year with freelance or gig work, congratulations! The downside? Your tax obligation may be larger than expected. Your earnings from the side hustle get added to your total income, potentially bumping you into a higher tax bracket. That’s ANOTHER reason to get ahead of this in October, so you’ll be able to get “caught up” and/or budget for a larger tax bill than you might have prepared for.
How to Calculate Your Estimated Tax:
The first step is to estimate your income and expenses for the entire year. Subtract any deductions (home office, business supplies, and so on) and apply the appropriate tax rates. But don’t stop there! Don’t forget to include Self-Employment Tax, which covers Social Security and Medicare. If this sounds overwhelming, fret not. Yes, there’s tax software, but if you’re running side hustles AND working full time, do you really have time for that?
(If the very thought of calculating estimated taxes for your gig work makes you want to take a long autumn hike and never come back, we’ve got your back. Our advanced tools can help you manage and predict your estimated tax liabilities for the year with ease. Take a few minutes and let’s set up a call and I promise, we can make this process a LOT easier…)
For those who are both employees and freelancers, coordinating your withholdings from your regular paycheck can offset some of your freelance tax obligations. Use IRS Form W-4 to tailor your withholdings appropriately. October is an excellent month to run a “paycheck checkup” to ensure the right amount is being withheld – frankly, I’d encourage ANY employee to do this, especially if you’ve had some changes in your life this year – marriage, divorce, a new baby, buying or selling a home, and so on.
As exciting as October can be, it’s not just about football games, Halloween costumes, and cooler weather; it’s about treating yourself to financial foresight so you’re not tricked by unexpected tax obligations later. Careful planning now will ensure that you won’t be haunted by the ghosts of tax past come next year.
Should you require further assistance or clarification, don’t hesitate to reach out. We are committed to guiding you through the financial intricacies of your unique professional circumstances.
Wishing you a successful and fiscally responsible autumn season.
All the best,