The IRS states that federal taxes must be paid on a “pay as you go” basis, not just at the end of the tax year. This means that if you receive significant income that is not subject to withholding, it is likely necessary for you to make estimated tax payments throughout the year. In addition to those who officially classify themselves as self-employed, many people who participate in the “gig” and/or “sharing” economy must also make these payments.
For example, if you drive for a rideshare service, rent out a spare room to travelers, or work for a few hours a week as a freelance dog walker, your income from those activities may be taxable. Because you don’t have an employer who withholds tax from paychecks, you must essentially handle the withholding yourself by making an estimated tax payment each quarter.
However, if you receive both employee income subject to withholding and additional, “side gig” income, you may be able to avoid making estimated tax payments by increasing the amount withheld from your regular paychecks. A qualified tax advisor can help you determine how much tax you are likely to owe, and whether it is more advantageous to adjust your withholding or make estimated payments. A qualified tax advisor may also be able to give you steps you can do to significantly reduce the amount of income tax you pay. I regularly find steps taxpayers can take to reduce their taxable income. However, these steps usually need to be worked during the tax year rather at the last minute. The sooner you do tax planning to learn the most effective tax reduction strategies for your situation the better results and higher the return on the investment to learn the steps you should be working now.
Estimated tax payments are due to the IRS quarterly. The two remaining estimated payment due dates for 2019 are:
1) September 16, 2019
2) January 15, 2020
Any missed quarterly payments will result in penalties and interest. The interest rate for underpayments by individual taxpayers for the 2019 tax year is 6 percent.