Estimated Quarterly Taxes 101Sep 04, 2022
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:
- Go to irs.gov/payments
- 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!
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