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Life Events, Strategies to Save

How to Pay Quarterly Estimated Taxes as a Freelancer

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Transitioning to self-employment and a full-time freelance workload has been liberating. No more rushed mornings or pushing through crowds on the AM commute. I leisurely roll out of bed, brew my coffee, and sit down at my desk- slowly waking up as I browse through the top stories of the day.

As much as I love the perks of working on my own terms, self-employment doesn’t come without its own set of headaches. Not only am I responsible for the projects I’ve been hired to complete, I’m also my own support system – marketing, HR, and accounting all rolled into one. That means keeping track of folders full of contracts, updating spreadsheets with invoices and payments, and of course, taking care of my own tax liability.

Employee vs. Independent Contractor

Employees have the luxury of having their taxes automatically withheld from their paychecks. As sad as it is to see $1,000 gross dwindle down to around $700 in take home pay, at least it’s done. As long as all of your income comes from W2 work, you’re pretty much free from having to stress over your taxes – beyond filing your return each year.

As an independent contractor or someone who is self-employed however, you don’t have the luxury of that same kind of hands-off, once a year approach. As great as it is to bill someone for a $1,000 and actually get the full $1,000, it’s kind of a tease. You’re still responsible for paying taxes on that income, but you’re the one who has to set it aside and make the requisite contributions. This is what’s called Estimated Taxes, and it is due each quarter.

Do You Owe Estimated Taxes?

Even if you get paid a consistent, regular income, if you are not an employee (and if you didn’t fill out a W-4, you’re probably not), you must take responsibility for your own tax payments. If you’re working under a 1099-MISC, if you get cash from one-time gigs like babysitting, if you side hustle online, if you get prize money from a game show, if you receive investment gains- pretty much any income that doesn’t already have taxes taken out becomes part of your quarterly estimated tax responsibility.

If you owe more than $1,000 and fail to file quarterly, the IRS can hit you with penalties and interest. Waiting to cover your annual tax liability in one lump sum can also present other challenges, like not having enough to cover your total amount owed. Know what your quarterly responsibilities are and stay on top of them to avoid a real IRS headache.

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Quarterly Tax Deadlines 

For income received January 1st through March 31st, estimated tax is due April 15th.

For income received April 1st through May 31st, estimated tax is due June 15th.

For income received June 1st through August 31st, estimated tax is due September 15th.

For income received September 1st through December 31st, estimated tax is due January 15th.

How Much Should You Pay?

Calculating your quarterly estimated taxes means figuring out your expected adjusted gross income, taxable income, deductions, and credits for the year. The more organized you are, the easier this will be. Keeping separate spreadsheets, even separate accounts and credit cards for all business and freelance income and expenses can simplify the process when it comes time to file.

Form 1040-ES. The Form 1040-ES, used to pay estimated taxes, can also help in calculating your quarterly estimated payments. The form includes a worksheet to give you a clear picture of how much you owe.

Use Historical Reference Points. If you’ve been running your own business for a while, you can also reference your tax returns from previous years to estimate projected income and deductions for the current year and your respective tax liability.

What Forms Do You Need?

Unfortunately, paying your quarterly estimated taxes isn’t as simple as a few clicks on Venmo or a swipe of your credit card. You’ll need to send in a Form 1040-ES, which includes quarterly payment vouchers to accompany your payment. In addition to estimated federal taxes, you’ll also need to pay your quarterly estimated state income taxes, getting the appropriate forms from your states’ tax office. 

Storing Your Temporary Savings

Once you get a handle on the basics- filing deadlines, forms needed, and organizational systems to help you streamline the process – the biggest challenge in self – employment taxes becomes separating and saving your quarterly payments.

It’s far too easy to dip into what should be your designated tax payment if you leave all your earnings sitting in a checking account. Set up a system of transferring a portion of each paycheck into a high yield, no fee savings account. That way the money is accessible when you need it come quarterly tax time, but not so accessible that you spend it all before fulfilling your tax liability.

Check out MagnifyMoney’s savings account comparison tool to find an account with solid returns and low/no fees, maximizing your money for every penny it’s worth before turning over whatever you owe to Uncle Sam.

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Stefanie O
Stefanie O'Connell |

Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at [email protected]

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Life Events, Mortgage

How Credit Report Disputes Can Sabotage Your Chance for a Mortgage

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Mortgage underwriting can feel like it’s taking a lifetime when it’s standing between you and your dream home. But your lender wants to make sure that you’ll be able to repay the loan, so they’ll take the time to go over your credit history with a proverbial magnifying glass.

Before you get to underwriting, you’ll want to make sure you’re a creditworthy borrower. This means maintaining a good payment history, paying down debt and disputing any errors on your credit report.

However, credit report disputes can impact your ability to get a mortgage if they’re still pending when you’re applying for a loan. This guide will explain how and why.

Why your credit reports and scores matter

One of the first things lenders look at is your credit report, which provides information about your credit history. It details whether you’ve made on-time payments on credit cards, loans and other accounts.

The information included in this report is summed up by a credit score that generally ranges between 300 and 850. The higher your score, the more creditworthy you are perceived to be.

Although credit scores aren’t the only factor that determines whether you’ll qualify for a mortgage, your credit score heavily influences the mortgage interest rate you receive. The highest scores qualify borrowers for the best mortgage rates.

Before you begin the homebuying process, it’s smart to review your credit report and have a copy handy. You can request a free credit report once a year from each of the three major credit reporting bureaus, Equifax, Experian and TransUnion, at AnnualCreditReport.com.

It’s critical to arm yourself with this information in advance. That gives you the opportunity to dispute any inaccuracies you’ve discovered and clean up your report.

What is a credit report dispute?

Credit report inaccuracies are relatively common. Inaccurate information can happen for a variety of reasons — a credit card payment being applied to the wrong account or duplicate accounts in your report giving the impression that you carry more debt than you actually do, for example.

Not only can errors harm your credit score, but they can prevent you from qualifying for a new credit account, such as an auto or home loan. That’s why it’s important to regularly keep track of the information found in your credit reports.

When you review your credit report and find an error, you have the opportunity to formally dispute it under the Fair Credit Reporting Act This is the first step to take to get the error corrected or removed.

Fortunately, it’s easier than ever to file a credit dispute with all three credit reporting agencies online.

How to file a credit report dispute

If you’ve found an error on your credit report, take the following steps to dispute it:

  1. Provide your contact information.
  2. Identify the items in your credit report that are inaccurate.
  3. Explain why you’re disputing the info and include documentation to support your dispute.
  4. Request a correction or deletion.

You’ll also want to reach out to the creditor that is reporting inaccurate information to the credit bureaus. Let them know you’re disputing the information and provide them the same documentation you’re giving to the bureaus.

In many cases, the credit bureaus investigate disputes within 30 days, according to myFICO.com.

However, many disputes can go unresolved for long periods of time, which can be troublesome for consumers applying for a mortgage. Many loan applicants don’t realize an open credit report dispute can raise a red flag to lenders and may even prevent mortgage approval.

When to file a credit report dispute

You’ll want to file a dispute as soon as you spot an error on any of your credit reports, but if you’re thinking about buying a home in the near future, it’s best to exercise caution when filing disputes, especially right before you apply for a mortgage.

Although the dispute investigation can wrap up in 30 days, it could last as long as 90 days, so it’s best to avoid filing new disputes a few months prior to starting the homebuying process.

How mortgage lenders view credit disputes

When a dispute is filed, credit reporting agencies are required to label the item as “in dispute.” The dispute itself doesn’t impact your FICO Score. However, your score may temporarily deflate or inflate while the disputed items are being investigated.

Mortgage lenders know credit reports with disputed items don’t paint the most accurate picture of a consumer’s creditworthiness and many require this status be removed before approving a mortgage application. This leaves some consumers with a difficult decision to make — accept costly credit report errors or delay applying for a loan until disputes have been resolved.

Here’s how lenders who provide conventional and FHA loans consider credit report disputes when determining whether a consumer qualifies for a mortgage.

Conventional loans

Both government-sponsored enterprises, Fannie Mae and Freddie Mac, have automated underwriting systems that alert lenders to existing credit report disputes. These entities don’t issue loans, but buy mortgages from lenders that follow their rules.

Fannie Mae’s system initially reviews all accounts on a borrower’s credit report, even those that are being disputed. If the borrower would be approved for the loan even with the account in question, the loan moves forward. But if the disputed account would push the borrower into the “rejection” category, the system will direct the lender to investigate whether the dispute is valid.

Lenders using Freddie Mac’s system are required to confirm the accuracy of disputed accounts. The borrower would need to have the accounts corrected before the loan can move forward.

FHA loans

FHA-approved lenders require borrowers with disputed delinquent accounts on their credit report to provide an explanation and supporting documentation about their dispute. If the account has an outstanding balance of more than $1,000, the loan must be manually underwritten, which means the loan officer has to review the loan application and supporting documents outside of the automated system.

The loan officer goes over the paperwork included in the borrower’s file very closely to determine their risk of mortgage default and whether they qualify for the loan program that they’re applying.

Disputed medical accounts are excluded from consideration, but disputed accounts that are paid on time must be factored into the borrower’s debt-to-income ratio.

How to remove a lingering credit report dispute

Gaining access to a new credit report with updated information is not an option for the borrower if the creditor won’t correct the information. And when a consumer files a complaint with the credit reporting agencies, the agencies will often defer to the creditor.

Just as you’ve reached out to your creditor and the credit reporting bureaus to file your dispute, you’ll want to take the same action to remove it. Contact the creditor directly and request that they update the account information to show that it’s no longer being disputed.

You may also want to reach out to Equifax, Experian and TransUnion to request dispute removal, but keep in mind they may also reach out to the creditor who is reporting the disputed account. See the FICO website for more information about contacting each bureau’s dispute department.

The bottom line

Dealing with an unresolved credit report dispute can turn into a consumer nightmare. Even if you’ve followed best practices, you may still be unhappy with the results.

Fortunately, you can still submit a complaint to the Consumer Financial Protection Bureau. They will forward your complaint directly to the company in dispute and work to get a response from them. Another option is to seek guidance from a consumer advocate or an attorney. The National Foundation for Credit Counseling may be a helpful place to start.

Credit reports and scores have such a strong influence on lifelong financial health, so the most effective defense is to be proactive about making sure yours are in the best shape possible. Regularly monitoring your credit profile and working to fix inaccuracies before applying for a mortgage is a good game plan to prevent major problems as you embark on the homebuying process.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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