I think the answer is: pay what I can on April 15, pay 20 percent over the rest of the year, and keep my eyes open for places to catch up, because I’ll need to catch up at some point.
The only thing you must do is file together, so you can figure out what makes sense for you both individually and as a team. This is where having an accountant really proves its worth.
Every month, I need to put 20 percent of my income towards taxes, 20 percent towards debt, and 10 percent towards savings.
Now, just to be clear, I think taxes are great. I’m happy to pay my share. But sometimes you can get a number like that and think “wow, that means I’m going to have to spend the entire year staying in the same place.”
“Having a high tax bill is always good news for me, because it means I had high income.”
“So I ended up paying $38,800 in taxes for 2014. That breaks down to $23,878 for federal income taxes, $5,955 for state income taxes, $7,254 for Social Security, and $1,713 for Medicare.”
I’m curious to know how other freelancers, small business owners, and variable income earners handle the “estimated income” discussion. Do you provide extrapolated income data based on the first quarter of the current tax year? Do you consider how your income rose and fell in previous years and estimate accordingly?