Demystifying Estimated Taxes: What Every Freelancer & Small Business Needs to Know

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You’ve finally landed that big freelance gig, your side hustle is taking off, or your new small business is gaining traction. Congratulations! But amidst the excitement, many self-employed individuals and small business owners overlook a crucial financial responsibility: estimated taxes. The surprise of a hefty tax bill (and potential penalties) at year-end can quickly dampen success.
At Eickmann Accounting, we believe financial clarity is empowerment. Let’s demystify estimated taxes, explaining what they are, who needs to pay them, how to calculate them, and the all-important quarterly deadlines.

What Are Estimated Taxes and Who Pays Them?

Unlike traditional employees whose taxes are withheld from every paycheck, if you’re self-employed, an independent contractor, or run a business (like a sole proprietorship, partnership, or S-corporation), the IRS requires you to pay your income tax and self-employment tax throughout the year as you earn income. This “pay-as-you-go” system is what we call estimated taxes.
Who Needs to Pay? Generally, you’ll need to pay estimated taxes if you expect to owe at least $1,000 in tax for the year. This applies to most:
Freelancers and independent contractors
Small business owners (sole proprietors, partners, LLC members)
Individuals with significant income from investments, dividends, rent, or alimony.
If you don’t pay enough tax throughout the year through withholding or estimated payments, you could face an underpayment penalty.

What Do Estimated Taxes Cover?

Your estimated tax payments aren’t just for federal income tax. They also cover:
Federal Income Tax: Your share of income tax based on your estimated annual earnings.
Self-Employment Tax: This is your contribution to Social Security and Medicare taxes. Since you don’t have an employer withholding these for you, you’re responsible for both the employer and employee portions. Currently, this is 15.3% on your net earnings from self-employment (12.4% for Social Security up to the annual limit, and 2.9% for Medicare with no earnings limit).

How Do You Calculate Estimated Taxes?

Calculating your estimated taxes involves projecting your gross income for the year, subtracting any anticipated deductions, and then calculating both your self-employment tax and your federal income tax.
The general rule is to pay at least 90% of your current year’s tax liability or 100% (or 110% for higher income earners) of your prior year’s tax liability, whichever is smaller, to avoid penalties.
The Challenge: Estimating your income can be tricky, especially if you’re a new business or freelancer with fluctuating earnings.
Actionable Tip: The IRS provides Form 1040-ES, Estimated Tax for Individuals, which includes a worksheet to help you figure your estimated tax. If your income significantly changes during the year, recalculate and adjust your payments accordingly. It’s better to overpay slightly and get a refund than to underpay and face penalties.

When Are Estimated Taxes Due? (The Quarterly Breakdown)

This is where many people get confused! “Quarterly” doesn’t necessarily mean every three months from January 1st. The IRS sets specific payment periods:
Payment Period 1 (January 1 to March 31): Due April 15
Payment Period 2 (April 1 to May 31): Due June 15
Payment Period 3 (June 1 to August 31): Due September 15
Payment Period 4 (September 1 to December 31): Due January 15 of the following year
Important Note: If any of these due dates fall on a weekend or holiday, the deadline shifts to the next business day.

How to Pay Estimated Taxes

The IRS offers several convenient ways to make your estimated tax payments:
IRS Direct Pay: Make payments directly from your checking or savings account online.
EFTPS (Electronic Federal Tax Payment System): A free service from the Treasury Department.
Debit/Credit Card: Through an authorized payment processor (fees apply).
Mail: Send a check or money order with Form 1040-ES payment voucher.


Demystifying estimated taxes is a critical step towards financial peace of mind for freelancers and small business owners. By understanding who needs to pay, how to calculate your obligations, and adhering to the quarterly deadlines, you can avoid penalties and manage your cash flow more effectively throughout the year.

Don’t let estimated taxes be a source of confusion or stress. Eickmann Accounting LLC can help you accurately calculate your obligations, plan your payments, and ensure you stay compliant, freeing you to focus on growing your business. Contact us for expert guidance!

Beyond April 15th: 5 Year-Round Strategies to Master Your Personal Taxes

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For many, the word “taxes” instantly conjures images of last-minute scrambles and the looming April 15th deadline. But what if we told you that mastering your personal taxes isn’t just about filing on time, but about smart, year-round planning? By adopting a proactive approach, you can reduce stress, uncover potential savings, and gain greater control over your financial future.
At Eickmann Accounting LLC, we believe that savvy tax management is an ongoing process, not an annual sprint. Here are five essential strategies to help you stay ahead of the game and optimize your personal tax situation throughout the year.

  1. Optimize Your Withholding or Estimated Payments

Are you consistently receiving a large tax refund each year? While a refund might feel like a bonus, it essentially means you’ve given the government an interest-free loan throughout the year. Conversely, owing a large sum can be a major headache, potentially leading to penalties.


The Strategy: For employees, regularly review and adjust your W-4 form with your employer to ensure your withholding accurately matches your tax liability. If you’re self-employed, a gig worker, or have significant investment income, making accurate quarterly estimated tax payments is crucial.


The Benefit: By aligning your payments more closely with what you actually owe, you keep more of your money throughout the year, ready for your own investments or expenses. It also helps you avoid underpayment penalties from the IRS.


Actionable Tip: Use the IRS Tax Withholding Estimator (or consult with your tax professional) whenever you experience a major life change like marriage, divorce, having a child, or changing jobs. For estimated tax payers, revisit your income projections quarterly.

  1. Track Deductible Expenses Diligently

Many individuals miss out on valuable deductions simply because they don’t keep meticulous records. From student loan interest to charitable contributions, eligible expenses can significantly reduce your taxable income.


The Strategy: Develop a consistent habit of tracking all your expenditures. This includes documenting cash payments, saving digital and physical receipts, and categorizing expenses as they occur.


The Benefit: Every legitimate deduction lowers your adjusted gross income (AGI), which can decrease your overall tax bill. For remote workers, understanding potential home office deductions (if applicable to your situation) can also make a difference.


Actionable Tip: Embrace digital solutions! Use expense tracking apps, take photos of receipts immediately, and maintain dedicated folders (digital or physical) for different categories of expenses. Consistency is key.

  1. Maximize Retirement Contributions

Contributing to retirement accounts is a dual-purpose strategy: it secures your financial future and often provides immediate tax benefits.


The Strategy: Actively contribute to tax-advantaged retirement accounts such as a 401(k) through your employer, or an Individual Retirement Account (IRA) – either Traditional or Roth. If eligible, Health Savings Accounts (HSAs) also offer incredible tax advantages.


The Benefit: Contributions to Traditional 401(k)s and IRAs are typically tax-deductible in the year you make them, lowering your current taxable income. HSAs offer a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.\


Actionable Tip: Review the annual contribution limits and aim to maximize them if possible. Set up automatic contributions from your paycheck or bank account to make saving effortless.

  1. Understand and Plan for Capital Gains and Losses

If you’re an investor, the buying and selling of assets like stocks, bonds, or real estate can have significant tax implications.
The Strategy: Don’t just make investment decisions in a vacuum. Understand the difference between short-term and long-term capital gains, and how capital losses can be used to offset gains (and even a portion of ordinary income).
The Benefit: Strategic planning around your investment portfolio can help you minimize the tax burden on your earnings. For example, “tax-loss harvesting” (selling investments at a loss to offset gains) is a common strategy.
Actionable Tip: Before making major investment moves, especially towards the end of the year, consult with a financial advisor and your tax professional to understand the potential tax consequences and optimize your portfolio.

  1. Review Life Changes and Their Tax Impact

Life is dynamic, and major milestones can dramatically alter your tax situation. Marriage, divorce, the birth or adoption of a child, purchasing a home, or starting a new job all have significant tax implications.


The Strategy: Don’t wait until April 15th to report these changes. Understand how each event can affect your deductions, credits, and overall tax liability.


The Benefit: By understanding the tax impact of life changes as they happen, you can proactively adjust your financial planning, update your withholdings, and ensure you’re claiming all eligible benefits (like the Child Tax Credit or mortgage interest deductions).


Actionable Tip: Whenever a significant life event occurs, make a note to discuss it with your tax professional. They can provide timely advice and help you adjust your strategy accordingly.


Navigating personal taxes doesn’t have to be a source of annual anxiety. By implementing these five year-round strategies, you can transform your approach from reactive to proactive, leading to greater financial clarity and potential savings. Need personalized guidance for your unique tax situation? Contact Eickmann Accounting LLC today for a consultation. We’re here to help you master your taxes, not just file them.