Pay As You Go

In my occupation, I work with taxpayers who have run afoul of the IRS for various reasons and are now, wisely, seeking to deal with their tax issues. Many of these taxpayers are self-employed individuals who get themselves in trouble by failing to make their quarterly estimated tax payments (1040ES). Then, they file their return with a large balance due and, guess what? That's right, they just don't have the cash in the bank to pay the balance due.

I used to be in the same situation as many of my clients. No, I never had a tax debt which I couldn't pay in full at filing, but I was self-employed and was required to make estimated tax payments. However, I rarely made these payments, partially because I was never aware that the US tax system isn't designed to "settle up" at the end of the year. It's actually a "pay as you go" system. Those of us who earn wages and whose employers withhold our taxes from our checks, actually pay as we go by having these withholdings taken and passed along to the IRS throughout the year. When you're self-employed, it's your responsibility to save enough of your income to send to the IRS each quarter. If you fail to do so, the IRS will assess penalties in order to recover the interest they lost by failing to receive your taxes on time.

Of course, if you make your quarterly estimated tax payments, there's much less chance that you'll end up owing at the end of the year and really making life difficult for yourself. If you've already got a tax problem and need help, talk to a tax consultant at Effectur, Inc. Remember, a small problem with the IRS today can become a huge problem down the road if you fail to deal with it!