If you struggle to save for taxes, give this a try.
- Freelancers are responsible for making quarterly estimated tax payments throughout the year.
- By automating the savings process and treating taxes like a must-pay bill, freelancers can more easily stay on top of their tax responsibilities.
Freelance life comes with many perks — a flexible schedule, the ability to choose what projects you take on, and more control over your income potential. But it also comes with added responsibilities. Freelance workers must save up for and make their tax payments. But it doesn’t have to be challenging to do so. Keep reading to learn more about a savings technique that helps me stay on top of my freelance tax payments.
Put your savings on autopilot
Self-employed workers, independent contractors, and freelancers must pay their taxes themselves. Unlike traditional salaried workers, their taxes aren’t deducted from their paychecks. It can take time to get used to this responsibility.
If you’re a new freelancer, the last thing you want is to realize that you don’t have enough money to make a quarterly payment. This kind of situation just adds to your stress. But it’s possible to avoid this and be prepared.
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Here’s what works for me: I put my savings on autopilot. I work with an accountant, so I know my tax liability. Through my bank, I have bi-weekly transfers set up to automatically transfer money from my checking account to my savings account. When it comes time to make my next quarterly tax payment, the money is ready and waiting for me to schedule the payment.
It’s free and easy to automate your savings. If you’re not yet using this method to save money for your freelance taxes, you may want to try it. You’ll likely feel more prepared once you set this up. It’ll be one less thing to worry about in your hectic life.
Treat your quarterly tax payments like a bill
Another practice that helps me prioritize saving enough money for taxes is to treat my taxes like a bill. It’s not something that I can put off without consequences.
Some bills like my mortgage, car insurance, and utility bills are expenses I must pay regularly. I also treat my tax payments the same way. My quarterly tax payments are bills that must be paid, not something I can ignore or delay. With this kind of thinking, saving up enough money for your taxes can be a lot easier.
What happens if you don’t prioritize these payments? You may be penalized if you skip quarterly tax payments or underpay. That means you’ll owe even more money to Uncle Sam. It’s best to stay on top of your quarterly tax payments. Otherwise, you’ll create more problems for yourself, and you could negatively impact your personal finance situation.
Don’t miss out on interest
If you’re setting aside money for upcoming quarterly tax payments, don’t miss out on the opportunity to earn interest. Don’t keep your money in your checking account. While a checking account is a secure place to keep your money, most checking accounts don’t earn interest.
Stashing your cash in a savings account is a fantastic way to boost your savings by earning interest. Many interest-earning accounts are offering competitive rates at this time. Check out our list of the best high-yield savings accounts to learn more about your options.
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Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.