The financial life of every freelancer is subdivided into quarterly estimated taxes. But in the holiday bustle, it’s easy to forget all about them. When the fourth quarter deadline comes, many people rush to make a payment without updating their income and end up with a surprise tax bill.
Let’s talk about why you should re-estimate your quarterly taxes before the end of the year and changes that can affect your payments.
What are quarterly estimated taxes?
Quarterly estimated taxes are advance payments made to the IRS meant to cover your tax liability for the year. Since freelancers don't receive regular paychecks with taxes withheld, they are responsible for making these quarterly payments.
Deadlines for paying quarterly estimated taxes
Typically the deadlines remain the same year-to-year but shift when the day falls on a weekend or holiday. Here are the deadlines for 2024:
- First quarter: April 15th
- Second quarter: June 17th
- Third quarter: September 16th
- Fourth quarter: January 15th, 2025
Freelancers need to estimate how much tax they owe using Form 1040-ES. Most people use income from the previous year or their current income to make estimates. The former is great for established freelancers, while the latter makes more sense for newer freelancers or those changing services.
No matter how you calculate your estimated taxes, updating your income (and payments) throughout the year is always a good idea. They’re called “estimated” taxes for a reason — freelance incomes fluctuate, which means that the payment you made for the first quarter may not be correct by the end of the year.
Why you need to recalculate estimated taxes for Q4
A lot can happen in a year, and even if your business is rock solid, life changes and other external circumstances may affect how much tax you owe. Fall is often the calm before the holiday season storm — which makes it the perfect time to get your finances in order.
Since no freelancer or freelance business is the same, it’s always a good idea to chat with an accountant. There are few things less confusing than taxes so the only way to make sure you’re paying the right amount is to ask an expert.
Use this checklist as a general guide when updating your 1040-ES.
- Calculate income changes: Add all your income for the year so far (including any W-2 earnings) to any expected income in Q4. Then recalculate your tax liability based on this new number (Tip: Use the worksheet in Form 1040-ES).
Now subtract the amount of tax you already paid this year (including withheld taxes on a paystub, if you also have W-2 income) from the updated tax liability. If the number is positive, you need to pay the difference by Jan 15. If it’s negative, you’ll likely get a refund!
Example: Angela made $50,000 from Jan to Oct 2024, and expects to make ~$10,000 Nov to Dec. Her estimated income for 2024 is ~$60,000. Based on this income, her tax liability is around $14,000. She looks through her IRS payments and sees that she already paid about $9,000. That means she’ll need to pay $5,000 more to avoid a tax bill. She may end up paying less if she deducts business expenses (more on those in a bit).
- Check your filing status: If you got married, divorced, want to file separately, or can now file as Head of Household, you’ll need to re-do your 1040-ES. People in different filing statuses have different tax brackets, so you’ll need to figure out how much you owe.
- If you moved, check state tax laws: If you moved from a state without income tax to a state with income tax, or one that has different tax rates, you’ll need to figure out how much you owe in your new state.
Filing status changes and tax laws can get incredibly confusing fast, so if you find yourself getting frustrated, get help from a tax professional. It’s the best way to prevent headaches and avoid paying more than you owe.
Don’t forget about tax deductions
If you’re taking the time to recalculate your estimated taxes, resist the urge to slam your laptop shut as soon as you’re done. Your bank statements are already pulled up, might as well round up a list of deductions — especially if you’re bracing yourself for paying a large tax bill for Q4, remember that deductions lower your taxable income.
As a freelancer you can write off expenses that W-2 employees cannot — including your home office square footage, relevant tools of the trade (software counts!), and business mileage.
Here are some expenses you may want to deduct.
- Home office square footage: If you work from home, you may be eligible to deduct $5 per square foot of your office space (up to 300 sq ft).
- Office supplies and equipment: Deduct the cost of supplies, equipment, and software used for your business.
- Professional fees: You can deduct fees paid for professional services related to your business, including conferences and skills/workshops.
- Business mileage: Business-related drives (except commutes) are tax deductible.
Depending on how much you drive, business mileage can be the most lucrative deduction on the list, but it’s also the hardest to track. Updating a spreadsheet is only marginally less annoying than tracking drives on your phone or in a notebook. Thankfully, mileage tracking apps, including MileIQ, can do most of the work for you.
It’s never too late to save on mileage
Forgot to track business mileage this year? It’s never too late and every mile counts! If you start tracking your drives now, you may still get some last-minute savings with 2024 tax deductions — and some savings are better than none.
If you don’t want to deal with mileage reports, MileIQ can track drives for you. Just download the app, create an account, and start driving.
