It’s no secret that the freelance economy is growing, which means more self-employed people who must pay taxes. This fact hasn’t gone unnoticed by the Internal Revenue Service (IRS) which, of course, has a special interest in ensuring that self-employed individuals pay all the taxes they are obligated to in a timely fashion.
Just in advance of the next estimated tax deadline, which is September 16, the IRS has released a new Tax Withholding Estimator tool. What’s important about this tool for freelancers? According to the IRS, it is designed to make it even easier for those who receive self-employment income to accurately estimate the right amount of tax they owe — even if they are also employed by a third-party.
Some of the features of the new IRS Tax Withholding Estimator tool applicable to self-employed individuals include:
- The ability for users to enter any self-employment income, including income from side gigs or the sharing economy, in addition to wages or pensions.
- Alerts that indicate whether you may qualify for several special tax benefits, including the self-employment health insurance deduction or the deduction for contributions to a Simplified Employee Pension (SEP), Savings Incentive Match Plans for Employees (SIMPLE) or other qualified retirement plan.
- Automatic calculation of the self-employment tax and the self-employment tax deduction. The tool will include these in your overall tax liability estimate.
It is important to remember that in addition to estimated taxes, you should also take into consideration any state and local income taxes that you may owe.
Given that we’re almost in the fourth quarter of the year, it’s worth checking out the new tool to make sure that your estimated tax payments and any withholding that you need to do are accurate. Doing so will help you avoid any surprises come tax season.
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union* and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, http://www.cpaforfreelancers.com — which also features a new blog, how-to articles, and a comprehensive freelance tax guide.
*Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available March 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.