Call me naive, but when I first started this whole “self-employed” thing, I didn’t realize I’d have to pay quarterly taxes. I had a faint idea about what I’d owe at the end of the year, so I set about 35% aside each month in anticipation.
The tax code is about 4 million words long. I’m a writer, not a CPA. If I attempted to have an accurate guess as to how much I’d owe, I would be more focused on trying to figure out my taxes than making a living.
When year one of owning The Savvy Copywriter, LLC came to a close, I met with my CPA. We sat over a cup of tea and she gave me “the look.” With her eyes and furled brow she told me everything I needed to hear – I was about to pay an extraordinary amount in taxes and I’d better be ready to sell my car, house, and dog to do so.
Fortunately I’d had enough foresight to put some money aside. As mentioned, I did have the smarts to save a percentage of my income from that year. That figure equaled about $11,400. Then, there were tax write-offs to take into consideration. That’s how all my friends got their refunds, wasn’t it? So, with all the tax write-offs expected to “only” pay $8,000 or $9,000.
Then reality hit.
After crunching the numbers and begging me to give as many write-offs as I legally could, my CPA came back to me the total amount owed. It was a whopping $12,872 owed in taxes.
That wasn’t all. Next came the second wind sucking blow to the stomach.
Quarter 1’s taxes are due on April 15 (thanks IRS) so I also had to pay $3,600 toward my first month of the new year.
That April cost me $16,472.
I’ve always prided myself on not dumping more than $100 of my personal savings into my business. I grew The Savvy Copywriter, LLC with only a website using the same tactics I use to grow my client’s businesses.
You can imagine the frustration I felt when I had to dip into my personal savings to pull out roughly $5,000 for Uncle Sam. Worse yet, I had to start from scratch with zero money to invest in my business and zero money to give myself a paycheck.
Time for a Tax Reform?
I’m not interested in getting political on this blog, but I do think there’s something off kilter here.
I work hard to earn my paycheck. Every dollar that comes my way is a dollar that’s soaked in my blood, sweat, and tears. Although I’m not opposed to paying taxes, I am concerned how few people know how much they pay in taxes each year. More importantly, I worry about the lack of insight into who is paying these taxes. Startups and small businesses like mine?
What would happen if we all had to handwrite an annual check to the government, instead of having it automatically withdrawn from a paycheck?
After reading articles like this one, I know I’m not alone in tax overwhelm among freelancers. Have you ever experienced tax overwhelm like this? Let me hear about it in the comments below!