My tax person wants me to switch to quarterly payments but my income is all over the place

Three years ago when I started freelancing in Austin, I just paid my taxes once a year and it was fine, even with a penalty. My tax person now says I make too much and need to do quarterly estimated payments to avoid bigger fines. The problem is my cash flow is crazy. Last month I made $8,500, but the three months before that I barely cleared $2,000 total. How am I supposed to guess what I owe each quarter? Part of me thinks she's right and I should just get used to the system, but another part wants to keep the cash on hand for slow periods and just deal with the yearly bill. Has anyone else with really uneven income made quarterly work without stressing every three months?

3 comments

3 Comments

phoenix14922d ago

Honestly the fines are usually not that bad. They just want you to pay something so the IRS gets its money sooner.

avery_flores21d ago

But what if you can't pay at all?

the_brian21d ago

Phoenix is right about the fines not being the end of the world, but they're missing the real point. The IRS safe harbor rule is your best friend here. If you pay at least 100% of last year's total tax bill in four equal chunks, you avoid fines no matter what you make this year. So you just base your quarterly payments on last year's income, which is a known number. It smooths out the crazy cash flow because you're not guessing. You might overpay in a bad year, but you get it back as a refund.