For many first-time business owners, business taxes are one of the most intimidating aspects of becoming self-employed. While business taxes are different than personal taxes, they don’t have to be more complicated. One way the IRS has simplified business taxes is through estimated quarterly payments. Here’s what you need to know as a business owner about estimated taxes:
What are estimated taxes?
When you’re an employee, the company you work for is required to withhold taxes from your income. When you’re self-employed, you no longer have anyone doing this for you. Business owners, sole proprietors, partnerships, and corporations all must pay quarterly taxes.
Should every business make quarterly estimated tax payments?
Generally speaking, yes, every business should pay quarterly taxes. However, there are a few “loopholes.” If you expect to owe less than $1,000 in taxes after subtracting your income tax withholding, you don’t need to make payments. Similarly, if 90% of the taxes you owe this year will be from income tax withholding, you won’t need to make quarterly payments. If you’re not sure, it’s safest to proceed and pay estimated taxes.
How do you determine your estimated taxes?
Most often you will use IRS Form 1040-ES to calculate your estimated taxes. This form walks you through the steps of determining your payments. Corporations, on the other hand, use Form 1120-W to calculate their payments. The worksheets may seem confusing; if you’d like help, contact us for information on how we can take care of calculating your estimated taxes for you.
When are quarterly estimated taxes due?
Payments are due usually about 2 weeks after the end of each quarter. The year is divided according to these dates:
- 1st Quarter: January 1 – March 31 [ estimated taxes due April 15 ]
- 2nd Quarter: April 1 – May 31 [ estimated taxes due June 16 ]
- 3rd Quarter: June 1 – August 31 [ estimated taxes due September 15 ]
- 4th Quarter: September 1 – December 31 [ estimated taxes due January 15 of the next year ]
How do I make payments?
You can pay online, over the phone, or by mail. Form 1040-ES has detailed instructions on how to make your payments, including how to write checks and where to mail them if you choose to pay that way.
What happens if I don’t pay the correct amount?
Typically, if you fail to make payments on time or underpay, you will incur a penalty. However, there are special circumstances – including if you receive your income unevenly throughout the year – that may exempt you from these penalties. See the IRS website for more information.
Our goal at Cascade Business Support is to take as much stress as we can off your shoulders during tax season. If you need help calculating your quarterly estimated taxes and want us to handle your business taxes for you, contact us and we’ll be in touch!