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Hey Taylor - After another year of scrambling to pay taxes and wondering if I could have paid less, I’ve started looking at estimated taxes. Do you know, generally speaking, if this is a beneficial option for people who are self-employed? - Kelly

Hey Kelly - Depending on your situation, paying estimated taxes leading up to the filing year can be really helpful. The only real downside is that some people think paying in advance offers some kind of loophole, which isn’t the way it works. If tax season gets you down, here are three ways estimated tax payments could lower your stress.

     1. Pay in smaller allotments. We all like paying less whenever possible, and while you won’t reduce your overall tax bill, breaking $20,000 into four payments of $5,000 can feel a lot more manageable. Most people who need to pay quarterly work for themselves and self-employment often has busy and slow seasons. If you break what you owe into installments, you get to choose when and how much you pay. This lets you get a little more predictive and, as long as you calculate responsibly, make larger payments when you have more cash flow available.

     2. Stay organized. I remember my first few years of paying taxes as an adult and trying to go through a year’s worth of business earnings by memory. A lot of stuff happens each year, and it’s no small task to keep track of all of it. The workload shrinks a little when you organize once every three months instead of once annually. If your receipt management isn’t the best, you’ll stand a better chance of finding information that’s two months old as opposed to 10 months old. The actual filing process doesn’t get easier from an IRS standpoint, but your personal filing process should be a little less daunting when you break it into three-month sections.

     3. Work taxes into your budget. Hopefully you already have a business budget, so adding a section for quarterly tax payments shouldn’t be too much of a stretch. It might make your earnings look smaller on paper, but you can feel confident knowing you won’t have to start the year indebted to the government. You might even get a bit of a return if you overpaid or had unexpected expenses. It’s pretty easy to add this to your budget - just take last year’s return, divide by four and plug that amount in for April, July, October and January (or whichever months make the most sense for your situation).

Paying estimated taxes doesn’t change what you owe, it just changes your personal management. If you feel like staggered payments will help you stay organized, I think it’s absolutely worth the effort. Hope it works for you, Kelly!

Taylor J Kovar, CEO
Kovar Capital