Surprise! You Owe More in Taxes!
As a freelancer, it's easy to be reminded by your accountant, the government, the internet, and your annoying friends and family members to 'pay your taxes'. But since your clients don’t deduct taxes from your paychecks, how are you supposed to know how much you owe?
Chances are, you're probably not very good at calculating that number. In fact, you’re most likely worried you might underestimate the amount of taxes you'll owe (again) and/or that your tax bill will throw your finances into turmoil (again).
In order to minimize the emotional and financial headache that tax season can bring, the moment your receive a paycheck you should separate the money you will owe the government from the money you can spend. We've created the following simple, step-by-step guide to help you accomplish this.
1. Have your accountant give you an estimate of what % of your income they think you'll owe in taxes this year. This is your Estimated Tax Rate (Ex. 30%).
2. Open a savings account and label it 'Taxes'.
3. Understand that the money in your "Taxes" account is not yours. It will belong to the government. Don't touch that money!
4. Pay your quarterly or yearly taxes out of your 'Taxes' account on time. The money in this account should fairly accurately reflect the money you owe.