Independent Contractor quarterly tax payments

[klj555]

Hello,

I recently became a full-time independent contractor for a company at the end of March. I am wondering how and when to start paying quarterly taxes on  my income. I do not have a set amount that I will be making monthly, as I am in sales and commissions vary.  What is the best way to go about this? Thanks for your time.

[drc845443]

I appreciate that sales based commission income fluctuates over the year, but you have to do your best to estimate how much income you will make for the year.

Using that estimate of your annual income, you can estimate the amount of taxes you can expect to pay for the year. You can use online tools like TaxCaster (see link below) to calculate your estimated tax liability for the year, then divide this amount by 4 to come up with your quarterly estimated tax payment.

Tax Calculator - Tax Refund & Return Estimator 2023-2024 | TurboTax® Official (intuit.com)

You can refine your estimate at the end of each quarter as your annual income becomes easier to estimate based on actuals from the previous quarters.

[RSUMan]

You will know the amount of your commissions each month. 

In my experience, independent contractors are not as efficient tracking expenses.

Keep a folder that you put receipts into and make a good effort to be disciplined about it.

There is a 15.3% Self Employement Tax on your profit.  That is 6.2 employer Social Security, 6.2 employee and 1.45 Medicare employer and 1.45 employee, all adding up to 15.3.

If you do not track expenses and mileage, you pay much Self Employment Tax.

Set aside a time each month (for example, third Sunday from 3 to 5 PM) and collate the receipts on a cover sheet.  

You are going to send in at least 15.3% of your profit each quarter for SE tax and then some additional amount to cover the income tax bill.

Regarding mileage:

There are apps that will help you track mileage.

Put in your calendar for Decenber 27 through 31 of each year to take a picture of your vehicle odometer.

It shows competence when the tax return has the beginning and ending mileage of the vehicle and then we can breakdown between business use and personal miles.