Is Paying Estimated Taxes Actually a Good Idea?
By Alan Olsen
For most people, thinking about taxes outside of April is a sin. However, anyone who earns self-employment income must think about taxes all the time. That’s especially true every three months when it’s time to pay quarterly estimated taxes.
No one really likes paying estimated taxes. After all, who wants to give away large chunks of money all at once four different times during the year? Nobody! But when you don’t fill out a W-4 and the IRS doesn’t automatically take its cut from a payroll check, you typically have to pay these taxes.
Despite the unpleasant feeling you get when you lay that money down and ship if off to the IRS, there are some reasons paying your quarterly estimated taxes is actually a good thing.
Imagine the feeling you would get if you were expecting a large refund at tax time, only to find out you didn’t pay enough and you actually owe a significant amount. By paying your estimated taxes you save yourself the shock of a surprise tax bill.
Furthermore, you might even owe additional fees and penalties if the bill is too high. In fact, if you owe more than just $1,000 the IRS could tack on penalties. That’s not a surprise anyone wants.
Lastly, when you pay quarterly estimated taxes you also get a better idea of your income. When you make these payments you tend to watch your cash flow more closely, which helps you keep a budget. That’s a good idea for everyone.
Even though making quarterly estimated tax payments sounds unpleasant, the reality is it might not be such a bad idea after all.