One of the drawbacks of self-employment is paying those pesky quarterly estimated taxes.
As a regular W-2 employee, with few exceptions, you only worry about filing your taxes once per year. But the self-employed, who aren’t getting taxes taken out of a paycheck by an employer, must calculate and pay estimated income taxes every three months.
It’s enough of an aggravation that you may elect not to follow the rules, limit tax calculations to once per year and face underpayment penalties.
Each quarter, the IRS announces the interest rate on underpayment for estimated quarterly taxes. And the interest rate has vaulted from 3% to 8% since Q1 of 2022. So the downside of avoiding quarterly payments for the self-employed has increased dramatically.
“It had been very common that people wouldn’t deal with [estimated quarterly taxes] until later,” says money expert Clark Howard. “Because interest rates in the economy were so low, the interest …