The Anti 9-to-5 Guide » Tax day, take two

Tax day, take two

January 16th, 2007

piggy bank In honor of freelance tax day, here’s one more Q&A with my friend the CPA:

Me: Say, Friend the CPA, I’ve been meaning to ask you this last question for a while. On the rare instance that I forget to make one of my freelance quarterly tax payments, what will Uncle Sam do to me? I mean, not that I would ever forget to pay my taxes, but I’ve heard of (ahem) people doing this.

CPA pal: If you don’t have an employer who takes taxes out of your paycheck, the IRS requires you pay your estimated taxes quarterly. In other words, “forgetting” isn’t an option. If you fail to pay your estimated taxes one particular quarter, all-knowing Uncle Sam will swiftly charge you interest on any late payments (though he likes to use the term “penalty”).

Happily, if your income during a particular quarter is nil, you don’t have to make an estimated tax payment for that quarter. However, you would have to fill out a form to prove that you had a dip in income and attach said form to your tax return. Otherwise, the IRS will simply go ahead and charge you the interest/penalty anyway. I do these forms for clients from time to time. But be warned: This is one nasty-ass form, and without impeccable financial records, it’s tough to fill out. Capiche?

Me: Thank you, Friend the CPA. You are wise beyond your years.

Entry Filed under: This freelance life, She's the boss, Toolbox, Ask the Cubicle Expat

8 Comments Add your own

1. job-mom | January 17th, 2007 at 12:09 pm

oye. my cpa hasn’t had me to this as a freelancer and now i’m officialy worried. thanks for adding this Q&A!
2. Michelle Goodman | January 17th, 2007 at 12:16 pm

hey, JM, uh oh. check in with your CPA. if you the bulk of your income comes from a client who DOES take out taxes, you’re probably fine. if not, it’s possible your CPA didn’t know your income is only coming from clients who DON’T take taxes out of your checks, in which case you must get her/him up to speed on everything asap, so s/he can help you fix it. good luck!

oh, and if it makes you feel any better, i maaaaaay have skipped a couple quarterly payments this year, so buried was i in my book writing. (oops.) i had to send out a fat check yesterdayto attempt to make up for it! ouch. and yeah, no telling what the penalties will be, if any. i will find out while i file my 2006 return.
3. Recently Freelance | January 17th, 2007 at 3:04 pm

So, I forgot to send my check. It is too late to do it today?
4. Michelle Goodman | January 17th, 2007 at 3:16 pm

hey RF, the date it had to be postmarked by to be considered on time was yesterday, 1/16, so you can still pay, but here’s what the IRS has to say about it:

“If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.”

(from this page: http://www.irs.gov/businesses/small/article/0,,id=110413,00.html)

i am not qualified to give you actual accounting advice because, you know, i am no CPA. but if it was me, i would either call my accountant to ask what s/he thinks you should do (given how much you’ve earned and how much you’ve paid so far this year, etc.), or send a check in today and hope that one day late is better than three months late. maybe calling that accountant or looking up H&R Block (if you don’t have an accountant) can shed some light on this, too.

oh, and lookie! you also can pay electronically: http://www.irs.gov/efile/article/0,,id=98005,00.html

(isn’t the IRS so nice to make it that much easier for you to fork over your money?!)
5. Down and Out | January 19th, 2007 at 2:33 pm

Hey–glad this info will be archived on your site. I like the Q & A format here, too…
xoxo
t
6. Michelle Goodman | January 19th, 2007 at 3:11 pm

thx, chica
7. melissa | January 25th, 2007 at 8:00 am

my business is an LLC (limited liability corporation), and we only pay income taxes once per year on April 15th. I have an account prepare everything, so I know for a fact he doesn’t file quarterly for us.
8. Michelle Goodman | January 25th, 2007 at 8:09 am

thanks, melissa. good to know. i’ve been talking about my unincorporated sole proprietor biz. but i will look into whether LLCs file quarterly next time i write about this topic.

THANKS, and WELCOME!