The government wants its money and it wants it now! If you’re an employee it’s no problem for the government because they take taxes out of every paycheck. But the self-employed have a little bit more of a hurtle to jump through for the government. It’s not enough that income taxes from one year are technically due the 15th April of the following year.
If you are self-employed you are still required to go without your money on an ongoing basis by filing Estimated Taxes. So all throughout the year, even if you have no idea what your income will be at the end of the year, the IRS requires you to guess and send them a cut.
Using TurboTax to Determine How Much Tax to Pay
Your income taxes are based on a percentage of income. These percentages are determined by the amount of income and are called tax tables. The lowest bracket is 10% and the highest is 35%. If you are a wage employee your withholding will reflect these brackets.
Whatever your tax situation, TurboTax can help you determine how much income tax you’ll pay or if you will get a refund. If you are self-employed or own a business TurboTax will calculate your estimated taxes for each quarter and file the forms electronically. You can also make your quarterly payments through TurboTax. Your estimated tax payments are typically expected to be more than the percentage of your tax bracket.
If you end up paying less in estimated tax throughout the year you might incur an additional penalty on the unpaid portion of your taxes. The IRS is fairly unforgiving to the self-employed who do not make estimated payments throughout the year.
The self-employed also get to pay something called the self-employment tax. This is a tax to compensate the government for the portion of your Social Security tax that would paid by an employer. As an employee you pay only a portion of your total Social Security tax. The employer pays an equal portion.
TurboTax calculates all available exemptions and deductions when calculating your final taxes for the year. This is when things like charitable contributions, mortgage deductions and property taxes get deducted or credited. It’s also when things like interest income and dividends get added to your overall tax calculations.
Many factors determine your overall tax bill with different rates for different amounts and kinds of income. TurboTax is an inexpensive way to automate your income taxes and cut down on the time you have to spend understanding all the nuances of income tax, and get the correct forms filed and taxes paid.