Paying your Federal Estimated Quarterly Taxes when you are a freelancer, self-employed, or 1099 worker, is something that the IRS requires you do throughout the tax year.
The process is annoying, complicated, and a burden. Afterall, you’ve got a business to run. Managing your schedule, work, clients, invoicing and wearing 15 different hats is tough enough.
Today, you’ll learn about the old, traditional, way to juggle estimated tax payments and the new, simple, solution that people just like yourself are using to find Freedom in their Finance.
Paying Your Federal Estimated Quarterly Taxes The Old Way
Let’s take a quick look at what traditional tax compliance used to consist of.
- Saving money all year to pay your taxes
- Calculating your quarterly obligations
- Making your payments to the IRS on time
Saving Money All Year
As a 1099 or contractor, the revenue you receive from your customers or clients isn’t all yours. You are responsible for paying your federal estimated quarterly taxes. That means every time you receive a payment a portion of that revenue most likely needs to be set aside and saved. The more payments you get the more you need to save.
As your business grows so does the amount of time and resources needed to manage the whole process. Keeping and managing multiple bank accounts can be troublesome and it’s easy to dip into ‘extra’ money when it’s just sitting there.
Calculating Quarterly Obligations
Next, you’ll need to calculate just how much money needs to go to paying your federal estimated quarterly taxes, to keep Uncle Sam off your back. Pull out the trusty IRS 1040-ES form, then calculate the amount you’ll need to pay each quarter.
It’s best to consider your earnings from the previous tax year. Then, divide that yearly amount by four to estimate how much you’re going to owe each quarter.
Making Electronic Payments to the IRS
Actually paying your Federal Estimated Quarterly Taxes is the most important step here. You want to stay in compliance and avoid any penalties, interest and accompanying fines that come with missed payments!
There are two electronic systems available from the IRS to pay your federal estimated taxes.
There is no account creation needed with IRS Direct Pay. It does, however, require you to provide information from a 1040 Tax Return from the last 6 years. This is used to validate your identity before making a payment. You will then have to use your bank account and routing information to set up the payment.
The Electronic Federal Tax Payment System (EFTPS) requires you to create an account (if you have not already) and sign in before using it to make your payments. If you have not used this system before there is a 10 day waiting period before you can submit your first payment. From there you will need to use your bank account and routing info to set up the payment.
Although it’s not recommended, you can also send in your payments via snail mail, with a check or money order. To do so, get out the old IRS 1040-ES because you’ll have to use a new voucher a separate estimated tax payment voucher for each due date. Fill out the voucher using the guidelines. The check or money order needs to be made payable to “United States Treasury” and needs your Social Security Number (SSN) on it.
So, to recap, if you’re not using Sabius you’ll need to make sure you’re saving money all year round, and you’ll probably need a separate bank account or somewhere to put that money so you (hopefully) don’t dip in when life happens (it will).
Then, you’ll need to break out the calculator or abacus and do all the math to figure out just how much you need to send to the IRS. Finally, you’ll need to actually make the payment.
Paying Your Federal Estimated Quarterly Taxes Automatically With Sabius
Awesome things to know about how the Sabius mobile application works right out of the gate:
- Sabius safely and securely links directly to your business bank account
- Estimated tax payments are sent directly to the IRS.
1. Link Your Business Bank Account
Once you’ve signed up for Sabius you can safely and securely link your business bank account. We can link to virtually every bank in the United States. The authentication process works directly with your financial institution so you’ll just use those credentials to authenticate your account.
2. Send Your IRS Payments in Real Time
After you’ve linked your bank account, Sabius will identify incoming revenue and send that portion directly to the IRS. Now the money is out of sight and out of mind. You are left working with your actual money and there is no need to stash or save and pay out big lump sums each quarter.
Want more Freedom in Freelance?
We are launching in Q4 2020. If you're ready to put your tax payments on autopilot we'll reach out to you with a special invitation.