There are many perks to being self-employed or working as an independent contractor. You likely have more flexibility over how and when you work. But one thing that isn’t so fun is planning for your taxes year-round. You may have just finished your taxes, but if you’re an independent contractor you actually need to think about your taxes quarterly.
What are quarterly taxes?
If you’re a salaried W-2 employee, your organization withholds money from each paycheck. Additionally, your employer will also split the cost of Social Security and Medicare, often referred to as FICA (Federal Insurance Contribution Act).
However, as a self-employed worker or contractor, no one is withholding tax dollars from your paycheck or splitting FICA costs. Now this is where quarterly taxes or estimated taxes come into play—since you’re your own boss, it's your job to pay Income Tax, Social Security, and Medicare taxes to the IRS.
Do you need to pay them?
You’ll need to pay these taxes if you're a contractor, self-employed or a small business owner that expects to owe more than $1000 in taxes. If you’re not sure if you need to pay estimated taxes, now’s the time to learn more.
You can pay your taxes at the end of each year in one lump sum, or you can pay them quarterly. It’s really whatever works best for your budget. Many people find that paying their taxes quarterly is more manageable for their cash flow.
If you want to go the quarterly route, quarterly taxes for income earned from April 1st, 2022 through May 31st, 2022 are due on June 15th. (File now!)
How much can I expect to owe?
- Your income tax is the same as everyone else, which follows the 2021 income tax bracket.
- Medicare and Social Security are lumped together, which is 15.3%. That number is broken down into 12.4% for Social Security and 2.9% for Medicare.
- 15% may sound like a big number, and that's because it is. However, you’ve got the opportunity to make some money back if you’re able to deduct some business expenses.
Maximize your deductions
As a self-employed worker or small business owner, It's not just about what you owe the IRS—here's your chance to get something back for all of your hard earned work. Writing off business expenses could be an extra boost you need this quarter to help cover your bills and make the most of your business. Here’s a few of the most common deductions:
Business use of a car
Great news for folks in last mile delivery or in trucking—if you bought a vehicle for your business and are actively using it for your business, then you may be eligible for this tax deduction. Just make sure to track your mileage at the beginning and end of each year. See if your situation qualifies.
Health insurance premium deduction
One of the downsides to being self-employed is paying out of pocket for healthcare premiums. However, there’s a silver lining—you may be able to deduct your health and dental as a business expense. Learn more.
Business insurance deduction
Like most business owners, you’ve invested time and money into everything that makes your business operate. If you pay a premium for fire, theft, or any kind of insurance, you may be eligible to claim those expenses.
Manage your business expenses and budgeting all in one place. Explore CashFlow, a free tool included in your Branch Wallet—built to give you personalized insights on your spending and help you manage your money.