Common Mistakes And Concerns With Self Employment Taxes

Self employment taxes are understandably intimidating for many small business owners

. Every time the due date for that quarterly estimated tax payment approaches, they anxiously check their free online accounting software to see how much savings they've been able to put away for small business tax preparation. And when it's insufficient, they become worried about what the mistake will cost them now and in the future. The good news is that they won't have too high an explicit cost. But there are a few variables that are concerning for self-employed and small business owners who are new to their changing tax liability.

The first thing to understand is that if your self-employed income for the year will be more than $1,500 you should plan on paying estimated quarterly taxes. The self-employed tax is roughly an additional 15% on top of your income tax. Quarterly taxes are due April 15, June 15, September 15, and January 15. So in April you're going to pay your first quarter taxes for the immediately previous months as well as file your annual tax return documents relating to the previous year.

If you miss a date the IRS will asses you a non-deductable interest charge on the unpaid amount. It's a very small amount and usually if you're a week or two late, they won't waste the time on the paperwork for a few dollars. Even if you fail to make every payment and just pay at the end of the year the fee is relatively minor. The bigger penalty of missing self employed taxes is that it probably means you weren't prepared or expecting them. So you have to scramble to find the cash necessary to make the payment as soon as possible, borrowing from other expenses and future needs. The mistake can be very difficult to overcome if you repeat it.

And of course, this is all just about federal taxes. There are state and city taxes to contend with as well. You have to check your local and state websites to find information about these taxes, but most prefer you pay quarterly. Again, they're not going to come after you if you wait until the end of the year, but there's often a small fee and you'll have the added frustration of that big bill owed in one lump.

All these potential mistakes and concerns about self employed taxes boil down to one thing; you should plan ahead and save so that you're prepared to pay estimated taxes on time each quarter. It's not the end of the world if you don't, but you'll be much happier, less stressed, and more successful if you don't put yourself in a bad situation.

by: John V

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