Quarterly Taxes: You asked, Wingspan answered!

After the hectic debacle that was 2020 tax season, we knew we had to learn how to better prepare to do our freelance taxes for 2021. Reflecting on our bookkeeping and hearing from you about your struggles and frustrations, we asked our friends at Wingspan to demystify our tax prep to avoid crisis come April 2021. Get ahead of the game now and make sure you are tightening up your shop with us. 

1. What are quarterly taxes?

Quarterly taxes (or estimated taxes) are what self-employed individuals have to pay to the IRS throughout the year to cover their income tax, Social Security, and Medicare.  

2. Do I actually need to pay them?

Yes–– and no. If you opt out of paying quarterly taxes, the IRS will add a penalty of 1/2 percent per month amounting to 6.5 percent per year. This is in addition to the 3 percent interest charge. All in all, you’re looking at a total penalty of around 9 percent.

3. What’s the deal with categorizing my business expenses?

When you file a Schedule-C with the IRS, they’ll ask you to itemize the total amount spent that tax year on things like office supplies, travel, contract labor, etc. This will help you be strategic in how to make your company more profitable. Pro-tip: Wingspan’s bookkeeping program will auto-import all your transactions and categorize them for you!

4. Deductions! Help! 

There are a ton of often overlooked expenses you can deduct that will lower your taxable income. In layman’s terms: if you made $1000 and had $200 of expenses, your net taxable income would only be $800. The easiest way to do this? Wingspan’s Bookkeeping tool! They will automatically find all your tax deductions and save you much money. 

5. What if I don’t have enough money to cover my tax burden?

If you can’t afford your estimated quarterly tax payment, don’t panic. The IRS has systems in place to make sure you can pay your taxes without breaking the bank. You can set up a plan that allows you to pay off your taxes in installments. If you don’t pay your quarterly taxes, when April 15 rolls around, you’ll owe all of the taxes you didn’t pay throughout the year, in addition to penalties.

Have a question that didn’t get answered here? We know we have a few more up our sleeves… Get in touch. Sign up for your free trial with Wingspan, import your transactions in the bookkeeping feature, and email us at ff@wingspan.app to set up 30 min with an accountant, on us!

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