Refund Anticipation Loan Guidelines for the Self-Employed

A refund anticipation loan is a short-term personal loan secured against an anticipated tax refund. These loans typically come with high interest rates, and they are due to be returned immediately once a refund is provided. Essentially, they serve as cash advances on expected tax refunds. Since self-employed individuals typically do not have taxes withheld from income, these loans will only work if a self-employed individual has contributed estimated taxes during the year.

Calculating Estimated Self-Employed Taxes

You can determine your estimated tax liability by looking at your previous tax statements.. This is especially useful if you spent time with a regular corporation before moving into self-employment. Estimated taxes can also be calculated with a 1040 worksheet or by speaking with a tax professional. The key is to get an estimated tax rate, such as 20%, that you anticipate being liable for down the line. By setting aside at least this much of each paycheck, you will have the funds available to pay taxes when they are due. Any extra savings can be spent or put toward savings at the end of the tax year.

Paying as You Go

It is key to remember we have a "pay as you go" system in the United States. You are not allowed to wait until the end of the year to pay any taxes on your earnings. Instead, taxes should be withheld on weekly or monthly paychecks. Since a self-employed person does not have a regular withholding schedule on a paycheck, it is necessary to pay estimated taxes each quarter. If you fail to make an estimated tax contribution each quarter, there may be penalties down the line. Here is the estimated tax schedule:

  • For income earned from Jan 1 to March 31 - Due April 15
  • For income earned from April 1 to May 31 - Due June 15
  • For income earned from June 1 to Aug 31 - Due Sept 15
  • For income earned from Sept 1 to Dec 31 - Due Jan 15 following year

Calculating a Refund

As a self-employed person, there are a number of standard deductions you can take from your yearly tax responsibility. Any expenses incurred in the course of completing of building your core business can be deducted from your taxable income. Charitable contributions, partial rent, partial insurance and even driving mileage may be deductible. It is likely that you are overpaying each quarter if you are not calculating standard deductions with a Schedule C. By estimating your deductions with a Schedule C form, you will have an idea of the refund you are owed.

Getting a Refund Loan

It can be hard to get a loan against this amount when you are self-employed. You will need statements of income as well as payments made to the IRS this year to show your anticipated refund. Even then, a lender may ask for further verification through a Schedule C document to show you overpaid. Without documented and accurate information, a self-employed person will not be eligible for a loan against an anticipated refund.


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