Saving for Tax Time

Last month, Jennifer shared the pros and cons of paying taxes monthly, and she mentioned something about letting her tax burden pile up. I believe that she is not alone in doing this, as it can be quite easy to simply “forget” taxes till the time that we absolutely must deal with them. I guess this is one of the perks of working for an employer. The company takes care of the taxes for you – computation, payment, and everything else.

For freelance writers, however, all the responsibility lies on our shoulders. If you opt to go the monthly payment route, you solve the problem of having to pay in bulk. It could be quite burdensome to go through the motions every month, though. What are you to do then?

Here’s a suggestion: pay quarterly or yearly, but make sure that you set aside money every month for taxes.

This will entail planning at the beginning of the year so you have a rough idea of how much to save each month. You simply need to estimate the percentage that you will have to pay and then set aside that much of your earnings from freelance writing monthly. When tax time comes, you will still have to go through all the paperwork, but you can rest assured that you will have more or less (hopefully more) money to cover everything. An added benefit of making this a habit is that, if you set aside more money than necessary for your taxes, you will end up having an extra savings account.

Anyone here who has been putting this in practice? Care to share your experience?

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7 responses
  1. Dave Avatar
    Dave

    I try to use a rule of thirds (roughly) to set aside for taxes. If I get a payment for $3,000, I immediately transfer $1,000 to an ING savings account to be held for quarterly tax payments. It frequently means I end up with a little left over in the account after the quarterly payments are made, but that’s better than the alternative.

    Reply
  2. Anne Bingham Avatar
    Anne Bingham

    I do the same as Dave, but over the years I’ve whittled it down to 23% of my net, which I put aside for quarterly taxes (both state and federal). I usually end up with a nice refund from the feds and about even with the state. YMMV depending on your state/province taxes.

    Reply
  3. Matt Avatar
    Matt

    Does anyone have an idea of how the tax requirements change if you’re living overseas for extended periods at a time?

    I have income from my travel blog, plus income from freelance writing assignments from overseas employers, plus income from US based writing assignments.

    I’m wondering how things will go come tax time.

    Reply
    1. franky Avatar
      franky

      Matt having lived in many different countries already, you have to check with the local tax requirements. Most countries allow you to earn for a certain period of time without having to register/report earnings in that country. As soon as a (immigration) registration is required you have to report your earnings in that country and often also if your earnings during your time there exceed a certain amount.

      Generally the location of your official residence is where you have to report your earnings. If you live abroad for longer periods of time you firast must check whether local immigration rules require you to register in that country and if not, you must check what the maximum amount is you are allowed to earn without having to report your earnings locally.

      Reply
  4. Amanda Avatar
    Amanda

    I pay quarterly. I just estimated my yearly income, filled out the estimated taxes calculator, and divided by four. No biggie.

    Reply
  5. Chris Avatar
    Chris

    I try to put aside about a third. I usually end up spending a small portion of it though. I should probably set up a savings account that is harder to get to…

    Reply
  6. Sagar Avatar
    Sagar

    My CA friend always help me with the taxes.Its too much for me

    Reply

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