When you own your own business, there are certain tax obligations that must be met. These obligations are usually taken care of by an employer when someone is employed. These include tax payments to the federal government and the state tax board as well. If you are self employed or are employed but have additional income such as alimony, interest income, dividends, or investment gains, you may be required to pay estimated taxes.
When Are Estimated Taxes Due?
Estimated taxes should be paid on a quarterly basis if you expect to owe $1,000 in taxes. Since your employer isn’t paying the taxes for you, the IRS and the state revenue department want quarterly payments from you. This pay-as-you-go strategy helps prevent underpayment penalties and helps ensure that your tax obligations are met. Since estimated taxes are due quarterly, due dates are spread out at 3-month intervals, with the payment for the first quarter due April 15. Subsequent estimated tax payments are due: June 15, September 15, and January 15. If the due date falls on a holiday, the due date is pushed back one working day.
In addition to making payments for your estimated taxes, you may also need to make payments for any sales tax you collected if your state requires you to do so. Sales tax due dates vary from state to state, with some requiring payment monthly, quarterly, or annually. Check with your states tax board for the specifics on the dates as each state is different. In California for example, if you are on a quarterly filing schedule, first quarter filings will be due April 30, second quarter July 31, third quarter October 31, and fourth quarter January 31.
How Much Estimated Taxes Do I Need To Pay?
Estimated taxes can be confusing to calculate, especially if it is your first time doing so. After all, how do you know how much you are going to make for the rest of year? If it is the first year you have to pay estimated taxes, you can base the amount you pay off of the amount of taxes you paid last year, even if you weren’t in business yet. The safest way to pay estimated taxes for the first year, is to pay the IRS requirement of 90% of your prior years taxes. Since estimated taxes are paid quarterly, take the amount you paid and divide it by 4. If you choose this method, the return must have been for a full 12 month period. In addition, working with a professional can help you establish you accurately calculate your estimated taxes. Our firm works with clients to project income and expenses to determine the estimated taxes due.
Of course things can change throughout the year. You could end up making more, or making less. To avoid paying too much or too little, be sure to monitor your income throughout the year. In the event that you end up making more, you will need to increase the amount you pay and that can be adjusted quarterly. Saving money is also a good way to avoid paying too little as well. We recommend setting aside a determined percentage each month that goes into a savings account that collects interest. Strategizing with a tax professional can help you determine the appropriate amount you should pay and how much you should save.
On the other hand, if you overpaid, you may want to decrease the amount. In the end, if you overpaid, the money will be returned to your when you file your income taxes
Who Do I Pay & How Do I Pay Estimated Taxes?
Estimated taxes can be paid several ways. The IRS makes it easy to make payments. Estimated taxes can be paid online, over the phone, or by mail. In addition, many states also require quarterly payments. Check with your states revenue department for the specifics on payments.
If you are required to pay estimated taxes, tax planning can really help make the process easier. Working with a tax professional is a good way to insure you are paying the correct amount and saving for the future. Contact Tax Hack for your free strategy session.
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