“When I was a W-2 employee, nestled snuggly suckling from the corporate teat, my overlords withheld income and employment taxes from my paycheck. Now self-employed, sustained by my wits alone, those taxes are still out of sight, out of mind.”
Transitioning from an employee to self-employed has a lot of moving parts. One of those parts is taxes. No more will an employer compulsorily deduct taxes from your income. But the IRS still expects you to pay taxes.
Unfortunately, for a business owner or freelancer, taxes are sometimes an afterthought. You made $25,000 last quarter? Great! Hope you didn’t spend it all. 15% to 25% of that income should be put aside for taxes and paid to the IRS quarterly.
You didn’t make quarterly tax payments throughout the year? The IRS may hit you with a penalty for not paying them soon enough. And you’ll owe the full tax liability on April 15th. Don’t have the money? Better negotiate a payment plan with the IRS, or they’ll take the money directly from your bank account.
Did I intend to sound like such an asshole writing this article? A little. It’s still better treatment than you’ll get from the IRS.
Don’t feel bad if this was you. You’re not the first to have made this mistake. And you won’t be the last.
Oh, and don’t forget to check if your state also requires estimated tax payments throughout the year. Good times.