I hated taking tests when I was in school. I was a terrible procrastinator and would wait until the very last minute to study. I’d stay up all night pounding energy drinks, staring bleary-eyed at my flashcards as though looking at them long enough would burn the facts in my memory. By the next morning, I’d be stressed, nervous, and kicking myself for not preparing earlier.
Now that I’m older, I like to think I’ve gotten a little wiser. I try to plan ahead for things and not wait until the very last moment, especially for the really important stuff. I mail my rent in at least a week early; just to be sure it gets to my landlord in time. And I always file my taxes well ahead of the date they are due.
If you are an owner-operator, paying taxes is a big change from the days when taxes were withheld from your paycheck as a company driver. Last year, I worked as an independent contractor for about four months. When it came to paying my taxes, I was shocked with how unprepared I was. At the time, I was excited to be receiving a nice big “return”. Reality hit when I saw how much I owed after such a short period of time! (Luckily my friends at ATBS helped me find deductions I didn’t even know about, and saved me hundreds of dollars. It could have been much worse.)
As an owner-operator, it’s important to be diligent about how much money you set aside throughout the year. Since January through March are the slowest months of the year for freight cycles, having a big payment due at the end of those months can be a huge burden. Therefore, ATBS recommends that drivers set aside between 25 and 28 percent of their weekly net income for quarterly taxes.
Create an organizational system for your business, and make it a priority. Get all of your paperwork, tax documents, and your finances in order to start the year off right. It may seem like a big change at first, but setting aside money with each check can quickly become part of your routine.
Why is it important to pay your quarterly taxes?
If you fail to pay your quarterly taxes, you will be charged a late payment penalty. Let’s assume that you also failed to file – that’s another penalty tacked on to what you have to give to the government. The current interest rate is 3%, which will get charged on top of the amount you owe after all the penalties have been added on
How much do you pay?
For owner-operators, estimating taxes based on actual income is recommended since income can vary significantly each month. You wouldn’t want to inaccurately estimate quarterly taxes and pay more or less than what is actually owed.
How do you pay your quarterly taxes?
You can pay your federal quarterly estimates online at eftps.gov
. Many states now allow you to make payments online as well. Go to your state’s Department of Revenue website to see how you can make a payment. For convenience, there is another secure site where you make state and federal payments together. This site is officialpayments.com
. The only downside is that they charge you 2% of what your payment total is.
Technically you have the right to wait and pay your taxes once a year, but is it really worth it? The infographic to the right illustrates the penalties and costs for avoiding filing or paying your taxes.
When it comes to taxes, I’d rather take small steps towards doing it right than hand over more of my hard-earned money.