Estimated Taxes
If you are a sole proprietor (“SP”) you do not have taxes withheld from your pay. You bill or contract for services and get paid in full (hopefully). Yippee – tax-free funds! No – you still have to pay but need to manage the tax payments yourself and there are penalties for underpayment. Your estimated taxes are intended to cover your liability from self-employment tax as well as state and federal income taxes. Consultants are often sole proprietors.
