Members Only Preview Episode: Grab your favorite beverage and tune into this episode about the boring (but necessary) quarterly taxes! I’m breaking down how I organize and automate taxes in my business, from saving my tax money to paying the IRS. Set it and forget it! I also detail the quarterly payment schedule and my personal method using Wave Accounting and automatic transfers to manage tax payments efficiently.
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Miranda Merten (00:00:00) – Self-Employment quarterly taxes. This is one of those boring topics that no one wants to tune into until it’s time. And it’s time. If you are a new self-employed business owner, you might be wondering what I mean by quarterly taxes. And if you’re a seasoned business owner, you likely, I hope, are well versed in keeping track of and submitting your quarterly taxes on time. Either way, I want to briefly touch on what they are, and then I want to talk about how I automate paying my taxes so that I’m not surprised when tax time comes around at the end of the year. First of all, it’s just what it sounds like. Self-employed business taxes. Since self-employed business owners don’t automatically have their taxes taken out of their profits. You have to set aside money in order to pay Uncle Sam later. So four times a year you have to send that money into the federal and state tax agencies to make sure that you are covered on your taxes. If you don’t do this, or if you just forget and you pay late, then you could be hit with penalties. (00:01:14) – Or even worse, if you forget about paying taxes at all at the end of the year. When you do file your annual taxes, you might find out that you owe a lot of money. So if you’re in a situation where you’re not getting a refund, that’s going to be a terrible thing. And then you have to pay a lump sum of taxes, which if you are not saving it every month, then that could impose a big burden on your finances. So the first thing you will need to know is who are you going to pay these taxes to? You’re going to pay. Number one, you’re going to pay the IRS. Duh. Um, you can literally find all the links and forms at irs.gov. You can sign up for an account and pay online, or you can mail them in. You’re also going to pay your state taxes, and you’re going to have to look that up where you are. You can search state quarterly income tax or go to your state government website, and they’ll have the estimated income tax links on there for you. (00:02:19) – And the next thing you’re going to do is figure out when your taxes are due. So quarterly means four times a year. And the dates that you’re going to need to remember the 15th is going to be your day. The 15th is always tax day unless you know it falls on a weekend or a holiday, and then the months you’re going to remember are April, June, September and January. Your April taxes or your April payment is going to cover the period between January and March. Your June taxes are going to cover the period between April and May. Your September taxes are between June and August, and then your January tax payment is going to cover the end of the year, September through December. So you’re actually paying your final tax payment in the following year. The January of the following year is going to be for the previous year. So the one that we just did in January actually covered the last payment for 2023. Now, if you are filing your annual taxes before January 31st, then you do not need to pay that January 15th payment, because essentially it’s going to be wrapped into your reporting for the entire year. (00:03:38) – So obviously, if you’re paying it to paying your taxes early in this first month, you won’t need that. Um, if you are an independent contractor and you have multiple clients, you probably aren’t paying your taxes in January because you’re waiting for likely you’re waiting for multiple 1090 nines to come in so that you can file those. But if you have people that are on it and they are coming to you in January, you may be able to go ahead and file your taxes early. But again, your annual taxes for the whole year are going to be due the regular time in April, and then the quarterly taxes you’re going to pay four times a year. Now, this last payment that we just had, like I said, was January 15th. It was actually due on the 16th because the 15th was MLK holiday. So if it falls on a weekend or holiday, likely they’re going to go ahead and push it back for you a day or two. And the last thing you’re going to need to know is the form you’re going to use. (00:04:41) – You’re going to be looking for the 1040 S, which is the estimated tax for individuals. And your situation might be different. So you want to look up exactly what you’re going to need for your situation. If you have an accountant or a tax advisor I definitely suggest you get with them. I’m not a tax professional. But I am just making this episode for you for your reference so that you know that you need to be doing these things. So how much are you going to pay? The way you’re going to figure this part out is that you’re going to look at your taxes for last year, or maybe even the last couple of years, if your income has been pretty steady and see how much you owed in taxes before and then start there. If you’re forecasting more money or less money, then you can adjust. And then also you want to look at your tax bracket, your current tax bracket based on your income. And then you’ll be able to figure out the percentages, um, if you want to be safe, you want to set aside 25 to 30%. (00:05:43) – If you are on the lower income scale, 20% 20 to 25% is usually going to be enough. But, um, to play it safe, people usually do 25 to 30. If you end up getting a huge refund, then you can adjust next year and do a little less. That way you’re not getting such a big refund because when you get a big refund from the government, that just means they were holding on to your money for you interest free. So you don’t want to send them all your money all year long for them to hold on to it and then give it back to you. Um, essentially what you want on your taxes. You don’t want to owe a whole lot. You don’t want to get a big, huge refund. Ideally, if you can somehow break even or get really close to that borderline one way or the other, a small refund or owing a small amount, that’s ideally where you want to be. So once you figure out that sweet spot, that’s going to be what your estimated payments should be divided by four, um, for the whole year. (00:06:42) – And then you can break those up. So here’s how I automate my tax process so that I don’t forget about it. Or I, um, don’t spend the tax money that I’m supposed to be saving. All of my retainer clients pay their invoices on the first of the month, and if I have any other project work or anything throughout the month, obviously I get those throughout the month, but I do have a certain amount of retainer clients that are basically guaranteed income every month. Uh, knock on wood, if that changes, if, um, my retainers go up or down, that would change, obviously. And I would go back and reevaluate how much I’m pulling from this pool. But they all come out the first of the month. I use wave accounting, and then everyone is set up for automatic payment. If you do not have your regular folks paying automatically, find out if they’re okay with that. If you have somebody that pays you a thousand bucks a month, um, and you’re still just invoicing them and waiting for them to pay you, um, see if you can set it up automatically to where it just builds them and charges it on whatever day you set and then sends them a receipt. (00:07:56) – That is literally what I do for all of my retainer clients. The first of the month, they get charged and it goes into my wave accounting, um, via stripe, and then stripe automatically sends it to my bank account. Um, I think stripe sends it checks every day, and then they’ll send it sends you your payment every day or so or every few days, depending on what your setup is. So I definitely recommend paying. Having people pay automatically find that if you can do that from them, or if they’re okay with that, and not only for peace of mind and predictability, but it’s less hassle to chase people down. People forget people don’t check their email, and then three days later they’re going, oh, I forgot to pay your invoice. Just don’t deal with it. See if you can get them automatically on some system. Then each month after my invoices come in, my tax portion automatically gets drafted into a separate portion of my bank account. So I use SoFi for my business checking and savings accounts. (00:09:04) – And then they have what is called, um, vaults. So they have separate savings buckets that you can set up called vaults. And I have different savings accounts. I have a couple of savings accounts. Um, and one of them is a tax vault. So every so if I get paid on the first and I know that my all of my invoice payments are going to be in there by the third, I have it automatically set up to draft from my checking account into my tax vault. Um, whatever my tax payment is that I have figured out that I want to save monthly. So it goes into the tax vault the same amount every time. So I’ve already figured out that is not even factored into my monthly budget. It automatically goes away just like. As if it were taken from my paycheck. It’s already planned for. I don’t see it that way. I am not tempted to spend it and say, hey, this $400 that I have over here, why don’t I just go ahead and purchase this item? No, that’s tax money. (00:10:15) – I don’t touch it. It just goes in there. Okay. So then that piles up. So basically every three months except for like the I think it’s the June payment is only a couple of months. But so every few months it piles up, I have a certain amount of cash. And then a few days before each of those tax due dates on the 15th that I mentioned before, my state and federal taxes are actually pulled from that account automatically. So I have actually set that up for them to do it automatically. I know it sounds a bit scary to have the government be able to take things from your account, but if they can put money in when they give you the refund. Newsflash they can take whatever they want they already have access to do whatever they want to do down the line. But if it still freaks you out for the government to be automatically pulling stuff out, just put a reminder on your calendar to transfer that money automatically or or manually excuse me and pay it manually. So you just go on to the website on the 14th or whatever day you want to do it and pay it manually. (00:11:26) – So keep all of your receipts, they will send you email confirmations and then you can sign into the government website. You can also view all of your payments that you’ve made for the year. And you will need those payments and the payment amounts and the dates for when you actually file your annual taxes and do your tax reporting so that you make sure you credit those correctly and you get the correct refund or the crack credit for what you have already paid into your taxes. So like I said, the irs.gov you can automatically schedule the payments on a certain day, put it on your checking your savings account and have it automatically come out. And then my state Georgia gov. Whatever the website is, um, they also have an option where I can have them draft it automatically out. So to recap my invoices, they get invoiced automatically on the first. They’re in my bank account by like the third. And then I draft it to my savings account automatically the tax portion. So they’re sitting in a savings bucket. (00:12:40) – And then automatically on the 15th on the quarters that they’re due, the government takes their taxes. I don’t have to worry about it. It’s set it and forget it. Um, I just keep a record of the receipts. When I get the emails, I do check on them to make sure. And let me tell you, the government, they will make sure they take their money. They’re they’re not going to make a mistake here. So if you say take the money, uh, make sure it’s in the account. Okay. So when that’s all done, I have said it and forget it. I don’t even look at it again. You know, like I said, I check that everything went through smoothly, and then that’s it. When it’s time for me to file my taxes, I pull all the receipts, I go on the websites and I have everything they’re laid out for me. So I don’t want any penalties. I don’t want the government come after me. It’s super serious. Um, so go ahead and schedule these, set them up. (00:13:40) – It doesn’t take a whole lot of time. If you aren’t familiar with the websites or the forms or anything like that, that’s probably going to take you the longest to figure out where you want to pull the money from and what websites you need to sign up for. But once you do that, it’s pretty easy, and 2024 payments begin on April 15th. That’s going to be the first one for 2024, so you have plenty of time to start planning accordingly. If you haven’t been doing it, you can start fresh. You have a few months, you can pile up, um, your January, February and March tax payments. And when April rolls around, you’ll be ready to rock and roll. So this goes without saying. Again, I am not a tax professional, so make sure you check with your accountant for anything that is specific to you and your business. And good luck with your taxes. I will see you next time.
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