Self Employed? Pay Your Estimated Taxes Monthly
Sept. 19, 2016
The Robert Burns poem To a Mouse, written in 1786, is an apology. The story has it that Mr. Burns upended a mouse's home while plowing a field and felt bad about it. To make amends, he wrote a poem, the most famous portion of which reads:
But little Mouse, you are not alone, In proving foresight may be vain: The best laid schemes of mice and men Go often askew, And leave us nothing but grief and pain,
John Steinbeck, the author of the 1937 Novel….Of Mice and Men, borrowed from Burns' poem when he titled the book, and this may be the reason we think of “Mice and Men” when our own grand plans go awry.
Every time I meet a self-employed client with tax debt, grand plans are part of the discussion. But the road to success is difficult, and grand plans get sidetracked by things like taxes. Many people who are self-employed don't withhold enough, and the IRS does it's best to leave nothing but “grief and pan” when this happens.
It files incorrect tax returns, assesses penalties, and uses these to levy bank accounts and assets.
Everyone who goes into business for themselves has the intention to follow the law and make it work. The plan is to make money, pay business expenses, quarterlies, and live a comfortable life.
But…running a small business is hard thing to do, and even the best laid plans…”go often askew”.
Contract's are broken, clients don't pay on time, competition grows like a weed, and the un-foreseen is around every corner.
The IRS makes it worse in it's never ending quest to enforce the Government's agenda of re-distribution.
The best solution short of winning the lottery, may be to stop making quarterly payments altogether.
No, don't become a tax “protestor”, just start paying monthly instead.
It's too hard and there are too many twists and turns for most small businesses to hold onto the tax funds for an entire quarter.
Paying each month turns the tax bill into a bill just like any other. It saves you from needing a separate account, and it eliminates the desire to use the funds for every emergency that pops up.
You can send the payment to the same address you would have sent your quarterly payments. Write your social security on the check (assuming you are using your social as your ID for the business) and include “estimated 2016 liability” in the memo.