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.
"Having a high tax bill is always good news for me, because it means I had high income."
It's Do 1 Thing time! Today, my one thing is to email my CPA (again) with a list of all my tax deductions
Every month, I need to put 20 percent of my income towards taxes, 20 percent towards debt, and 10 percent towards savings.
"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 think I thought my CPA meeting would be an in-depth conversation about every aspect of my business, a combination "tax prep and business health" service, and it turned out to be much more "let's look at the problem in front of us, which is inputting numbers into your 2014 tax return."
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."
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?
In the past few days, I've opened my mailbox and discovered 1099 forms, a W-2, as well as 1098-E forms (student loan interest statements) in my email inbox. The forms are currently being organized in a folder. Our favorite time of year has come and I'm slowly preparing for it. Today, Jan. 20, marks the official start of the tax-filing season.