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First Time Filing Quarterly Taxes As Self-Employed

Hi, I am preparing my quarterly taxes for the first time. I am a freelance Virtual Assistant under my LLC (my DBA/assumed name is the name of my business) and I got my first client on June 17th, 2024. So far I have only had this one client. I live in Minnesota. I found my client on the freelancing platform Upwork and I get paid through Upwork. Since my first day working with them (part-time) I have made around $2000 and put aside 30% of each invoice for taxes in a high-yield savings account. I am not sure if I need to pay quarterly taxes or honestly how to do it. I don't think I can afford to get an accountant and I'm not sure if that would be necessary at such an early stage in my business. Could you let me know if I have to pay (or how I can find out) and where/how you pay? Also, are quarterly taxes when you also put in tax returnable things? That is something I am a bit confused about. I saw online business owners are entitled to $1000 in tax returns for business-related items (I have a business debit card I use for any such purchases and that is also where my invoices are paid to) as well as things such a portion of rent when you have a designated office space. I really want to understand all of that, thank you!

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3 Replies
Cindy4
Employee Tax Expert

First Time Filing Quarterly Taxes As Self-Employed

You're required to make quarterly payments if you owe more than $1,000 in tax at the end of the year to avoid underpayment penalties.   Here is a good overview of determining if and what to pay and when to pay it.  You’re responsible for all of your FICA – Social Security and Medicare – along with income tax on your profit.  

 

Congratulations on your new business!  It's wonderful that you're setting aside 30%, and have it making money for you.

 

You'll want to track all of your business related expenses.  This will be anything you pay out in order to generate the income.  Here is a great resource for self-employment.   Be sure to scroll to the bottom for the tools.  

 

You can make estimated payments either by using form 1040-ES, or by using the direct pay IRS website.  

 

Hope this helps!

Cindy

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dsoile
Employee Tax Expert

First Time Filing Quarterly Taxes As Self-Employed

Hello Olivia

 

The process of whether or not, when, and how to make quarterly estimated tax payments can be confusing and it is very case-by-case basis for each taxpayer given their unique circumstance(s). 

 

A taxpayer must make estimated tax payments for the current tax year if both of the following apply: 1) expect to owe at least $1,000 in taxes after factoring in tax withheld and refundable credits and 2) expect sum of tax withheld and refundable credits to be less than 90% of the tax shown in their current year tax return or less than 100% of the tax shown on their prior year return.

 

We are not at liberty of being able to provide specifics in numbers as far as how much in estimated tax payments you should make per quarter, since the quarterly amounts are projections based on a variety of factors that vary for each individual taxpayer, hence why the tax payments are estimates.

 

The main ways to make estimated tax payments are as follows: 1) including payment with Form1040-ES vouchers (these vouchers have a pre-determined payment amount on them) or 2) electronically by going the online route to IRS.gov/payments or mobile route using the IRS2Go app

 

Quarterly estimated tax payments are different from tax deductions. 

 

This is a general summary of the tax formula:  Income minus above line deductions = AGI, then AGI minus below line deductions = Taxable Income, then Taxable Income times Tax rate = Total Tax, then, Total Tax minus credits minus tax withholdings minus estimated tax payments = Tax owed or tax refund or 0  *withholdings are taxes withheld from your pay*

 

Estimated tax payments are usually made quarterly: Q1 (January-March) w/payment due April 15th, Q2 (April-May) w/ payment due June 15th, Q3 (June-August), w/ payment due September 15th, and Q4 (September-December), w/ payment due January 15 of the following year.  

 

How much in quarterly tax payments you should make is dependent on projected income amount for the current tax year you are making the payments for or tax liability from the prior tax year. In the case of the latter, you will typically be provided 4 quarterly vouchers, each with an amount that is suggested you pay quarterly to avoid underpayment in tax for the subsequent tax year (current tax year) based on analysis of outcome from prior tax year. 

 

Whether or not you need to make estimated payments and how much in payments to make is dependent on your situation, specifically how profitable your business will be for the current tax year. You mentioned that you set aside 30% for each amount of revenue you receive. As long as it is affordable for you to do so, then you can continue with the approach.

 

 

First Time Filing Quarterly Taxes As Self-Employed

Hi Cindy,

 

Thanks so much for your message!

 

Even with the one client I have now, I will have to pay more than $1000 in taxes by April 2025 and I am already interviewing to take on more clients. I only know an estimate of my taxes and how much I would make when I'm filing 2024 taxes with the one client I have now. I'm not sure how to estimate my taxes when I know I will have more income soon but I have no idea how much and exactly when. For this quarterly tax period should I just base that off of the 30% I've saved from this tax period?

 

I meticulously track every invoice that comes into my account, as well as how much I move for taxes, how much I pay myself, and what expenses I have for my business such as software or office supplies and that is paid for on my business debit card.

 

I have not been able to figure out/access any TurboTax tax calculating tool. It either has me sign in on Intuit where I would receive my paychecks for my previous job up until July 2024 or I signed up for the TurboTax expense monitor and I don't see where I can calculate my estimated self-employement taxes. Could you help me find how to do that.

 

When do you recommend paying quarterly taxes? Should I wait till closer to September 15th or will that depend on what the tax calculator estimates I should pay?

 

Should I calculate self-employment deductions for these quarterly taxes or do you do that when filing in April for the 2024 taxes?

 

Thanks Cindy!

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