With the second quarter estimated tax payment deadline approaching in June, freelancers and self-employed workers are calculating their obligations based on first-quarter earnings. Underpaying estimated taxes can result in penalties even if a refund is ultimately due when the annual return is filed.
Tax advisors recommend using the safe harbor method, which bases estimated payments on 100 percent of the prior year's tax liability for most filers or 110 percent for higher earners. This approach eliminates underpayment penalties regardless of current-year income fluctuations.
Accounting software designed for freelancers now includes automated estimated tax calculation features that set aside a percentage of each payment received into a dedicated tax savings account.
