Estimated Quarterly Taxes 101

One of the biggest mistakes small business owners make is failing to prepare for tax time. Taxes can feel overwhelming and confusing, but it doesn’t have to be that way! Instead of being nervous when tax time comes around, let’s plan and prepare for it.

One way to do that is to make sure you pay your quarterly estimated tax payments. Let’s talk about the who, what, where, why and how of these important tax payments.

If you've ever been an employee, you probably remember the taxes being deducted from your wages every time you were paid. 

When you're self-employed, the IRS expects you to still pay your taxes throughout the year except in the form of estimated taxes.

If you expect to owe taxes of $1,000 or more, you will generally need to pay estimated taxes.

 Payments are made quarterly. The due date for each payment are shown below.

                   Time Period                                              Due Date

                   January 1 - March 31                                 April 15th 

                   April 1 - May 31                                          June 15th 

                   June 1 - August 31                                     September 15th 

                   September 1 - December 31                     January 15th

It is always best to consult with your tax accountant to determine your exact estimated tax payment.

However, a good rule of thumb is to set aside 25% of your profit as savings for your estimated tax payments.

You will pay your total tax liability when you file your income tax return. While it might be tempting to wait until then, there are consequences to doing this.

First, you could incur an underpayment penalty for not paying enough throughout the year.

Second, a large tax bill that has to be paid all at once can wreak havoc on your cash flow come April 15th! 

There a number of ways you can make payments to the IRS:

1. Go to irs.gov/payments
2. Download the IRS2Go app

If applicable, you should also pay your state estimated taxes. I have compiled a list of each state's payment sites here. 

One of the biggest mistakes that business owners make is failing to prepare for taxes. Don't make that mistake! Estimated quarterly tax payments are the best way to make April 15th a breeze!

The last thing you need is another thing to remember! Do yourself a favor and sign up for my bookkeeping & tax reminders so you stay on track and don't miss a deadline. You can do that using the button below!