Tax myth: Quarterly taxes are for chumps

Quarterly tax payments, also called estimated taxes, are possibly the most dreaded part of 1099 contractor taxes. It seems unfair that just because you earn money as a 1099 contractor, you have to file your taxes every three months. But is it true?

The IRS says: yes, you must file quarterly taxes

“Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.”

Guess what: if you earn more than about $3,000 per year from 1099 contracting work, you’re included! Part-time independent consultants, Uber drivers, business owners, Airbnb hosts, Etsy sellers, it’s all the same to the IRS. Want to read the whole post? Knock yourself out.

Quarterly taxes are designed to help you avoid getting blindsided by a huge 1099 contracting tax bill at the end of the year (thanks, big brother).

Wait, really?

Yes. However, the IRS has been famously understaffed and occasionally waives the penalty, as it did for 2018.

What’s the penalty?

The exact penalty amount changes every year, but in 2018, it was about 5% of your unpaid taxes. That’s about $500 for every $30,000 in 1099 income reported (assuming a 30% effective tax rate).

Ok. So how do I file quarterly taxes?

Filing quarterly taxes is actually quite simple — you can do it entirely online. The tricky part is having all of your income and expense records straight four times a year. It requires being a lot more organized than most people want to be. Of course, there are tools that help you do this… dare I say… for you!

Bottom line: Yes, you should probably file quarterly taxes. Keeper does it for you.

This post was originally published on the Keeper Tax Blog.