The first tax deadline of 2017 is rapidly approaching - January 17! Scared you, didn't I? Well, for independent contractors or self-employed folks that date is when the final payment of estimated taxes for 2016 is due. If you, like millions of other Americans, are making extra money (or trying to) doing side hustles, gigging, freelancing, consulting, or moonlighting, it is important to figure out how much you are making so you can pay your estimated taxes. It is important for two reasons: first - pay as you go is required under our system of taxation; second, if you underpay by too much, you can owe penalties and interest - and no one wants that. Here's what you need to do right now.
Track Your Income and Expenses - During my career, I've met people that were shocked to receive a 1099-MISC. Somehow they forgot about assisting a photographer, painting a house, or writing an article they were paid for until they got that 1099. Though any time you make more than $600 from one client they are required to issue a 1099-MISC to you and send a copy to the IRS, some businesses issue them regardless of the amount paid and some that should have issued one - don't. Keep in mind, whether you received a 1099 or not, you are responsible for reporting all the income and expenses from your business. If you made money it is generally taxable whether you get a 1099-MISC or not. Maybe you moved, maybe it got lost in mail, maybe the company just decided NOT to send you one - but DID send it to IRS. In any case, keeping track of (and reporting) your earnings is the rule and just smart business. Tracking your expenses is as critical as tracking your income when it comes to self-employment - those expenses can add up to a lot of deductions when used appropriately. Don't wait until the end of the year to review your income and expenses or you may find that you didn't pay enough or paid too much in estimated taxes.
Pay Estimated Taxes - Ideally, you paid taxes as you made money throughout the year - at least enough to cover your liability. If you didn't make your estimated payments - on time or at all - then try and figure out what you owe and pay extra with your 2016 Estimated Tax 1040-ES 'Payment Voucher 4.' That's the one I mentioned earlier as due January 17. Hurry up, because the IRS could charge you a penalty for no or late payments - even if you are due a refund. There are many tax details to contend with when you are self-employed and determining and making estimated tax payments can be complicated. Find a good Tax Pro to help you determine the right amount of estimated payments and ensure that your taxes are done right. You will save yourself time, stress, and maybe even money. If you've got it all figured out and you know what your final 1040-ES payment for 2016 should be, use IRS Direct Pay to make your payment quickly, safely, and securely.
Though the 2017 income tax filing season doesn't open until January 23, there is no reason not to get a jump-start on your tax return. You might find that you are missing a form, support for a deduction, or you might just need extra time to really dig into your tax situation. In any case, start as early as you can, as that is just smart business too. It is your money, a bit of extra effort at tax time means you get to keep more of your money.