There is a lot to be said for being self-employed. You are in full control over how much money you make, and when you work. You can take time off whenever you need to, and you can answer emergency calls about your kids without facing punitive measures for leaving work. There is just one thing; taxes. There are a couple of ways you can manage your taxes, but each has its own benefits and drawbacks.
Saving Nothing for Taxes All Year
You can absolutely avoid saving money for taxes all year. This allows you to have a lot more cash on hand when you need it most and not have to be at the mercy of emergency situations. The problem is, doing your self-employment taxes this way essentially gives you your refund up front all year long, and then you are stuck with an enormous tax bill when you file your taxes. Still, you can make life easier and more comfortable this way, and you still have the option of a payment plan for that tax bill next year.
Stashing the Tax Money Every Month
Of course, you could go another direction with your taxes and save about $200 a month every month until tax time. This will give you at least enough money to make a sizable payment on anything you owe the IRS and your state's revenue department. If you owe anything more beyond that, it should still be manageable with a payment plan. Most people who look at doing self-employment taxes this way know that they will never get a refund, unless they owe very little. Then the excess money they saved all year to pay the tax bills is their refund.
Another drawback to stashing money to pay taxes is that you have to figure out how much you should be putting away. Yes, you can stash a minimum of $200, but if you want to save money and not pay the fee for a payment plan, you need to pay the bill in full. Tax preparation services can help you calculate an accurate amount to put away. If it is difficult and financially painful to put that much cash into a savings and leave it sit, just think about the fact that you will save yourself some hefty fees, and you get to keep any excess. It is akin to paying both yourself and the government at the same time. Contact a CPA, like Hough & Co CPA , for more help.