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Stop the fingers-crossed, nail-biting approach to taxes. Here's a 3 step guide to staying ahead of the taxes: 1) How to Estimate your Quarterly Taxes, 2) Setting Aside Money every time you're paid, and 3) How to Actually Pay the Government
At least half of the independent professionals I talk to take the “Fingers Crossed” approach to tax prep. You get paid by clients, pay all your bills, invest in your business and yourself (self-care matters!), and repeat.
Until April tax season. And then you tear out your hair trying to figure out how much you owe. If you didn’t pay quarterly, you bite your nails hoping you’ll have enough saved up, fingers crossed the IRS will just slap you with a penalty and not throw you in jail (don’t worry, they won’t).
There’s a better way. Instead of waiting until the last minute, you can set aside money each time you get paid and stay on top of quarterly payments. You’ll get instant relief because you know there won’t be unhappy surprises come tax time.
Like any hungry beast, the Tax Monster demands to be fed regularly. In this case, that means 4 times a year. When you work a traditional job under a W2, your employer automatically deducts your taxable income and feeds the government for you. When you work for yourself you have to feed the beast yourself. Every quarter.
You don’t have to get this perfectly right. You just need a good estimate. A good estimate protects you from fines the IRS would charge if you fail to pay quarterly.
Here are 3 ways you can give yourself a good estimate:
There’s a 4th way - Ruby Money. Our app gives you an accurate estimate for both federal and state taxes based on your real-time income, your tax filing status, and your state. For free. Just connect your bank account and you’ll see your estimate.
Now that you have an estimate for how much to pay in quarterly taxes, you gotta make sure you’ve saved up enough money to pay the bill. Not so easy when your income moves up and down with the changing tides.
You might be tempted to set aside money only when you’re flush - when you got a big payment from your biggest client - and then to keep money for other expenses when you’re tight.
But again, there’s a better way. Set aside a percentage of your income, and do this each time you get paid. Unlike a flat dollar amount, percentages will flex how much you set aside based on exactly how much you’re earning - ah, algebra! And doing this each time you’re paid builds the small, repeated habit that actually brings results.
Ruby Money can do exactly this for you. We scan your bank account, and every time you get paid, we’ll set aside the right percentage for your taxes. No more scrambling trying to find money to pay the piper.
Finally, you gotta bite the bullet and actually send the money along. There are 3 ways you can do this:
You guessed it, the third way is the best way: pay through Ruby Money. When each quarter payment comes due, just tap “Pay Taxes,” and you’ll be done with both federal and state quarterly tax payments. We’ll send you helpful reminders so you never miss a quarterly payment.
Download the Ruby Money app (if you haven’t already), to set up your tax plan and Tame the Tax Monster.