We’ve all heard the quote, “In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin said this more than 200 years ago, and guess what? It still applies today, especially if you own your own business.
Small business owners, employees and people who are self-employed must pay taxes. But, did you know the IRS expects those payments to be made as your income is earned, not just when you file a tax return? In fact, the IRS says if you owed more than $1,000 in taxes when you filed your taxes last year, then you must pay estimated taxes each subsequent year. Estimated taxes are quarterly taxes, usually made in four equal parts, that are not subject to withholding tax. So who pays and how? Here are some guidelines for people who have to pay estimated taxes:
- WHO PAYS ESTIMATED TAXES – If you’re self-employed, are the sole proprietor of a business, own or are partners in a corporation, are a corporation shareholder, or if you owed taxes last year, then expect to pay estimated taxes. It doesn’t matter if you work full or part time, if your tax liability is over $1,000 then you will need to pay estimated taxes. If your corporation is expected to have at least $500 in tax liability, then plan on paying estimated taxes. Ask your bookkeeper or accountant to check on whether you might owe, and if they can’t tell you, then contact us here at Brigade Bookkeeping.
- PAY AS YOU GO – You’ll need to use IRS Form 1040-ES or the Estimated Tax for Individuals form to calculate your estimated taxes. Make sure you pay on time, and for estimated taxes, that’s four times a year. The deadlines are: April 15th for income earned January 1st through March 31st, then June 16th for income earned April 1st through May 31st, next September 15th for June 1st through August 31st and finally, January 15th of the following year for income made September 1st through December 31st.
- HOW TO CALCULATE ESTIMATED TAX PAYMENT – If you think you owe estimated taxes, you need to compile your income, deductions, credits and paid taxes to estimate how much you have to pay. If you’re unsure about how much to pay, reach out to your payroll company, bookkeeper, or accountant for a professional opinion instead of doing it yourself and paying too much or later having to owe the government money.
So as the saying goes, the only certain things in life are death and taxes. Paying your estimated taxes on time is important. If you haven’t done so and missed payments, do it as soon as possible so you don’t get hit with an IRS payment penalty. If you have any questions about your tax liability, don’t hesitate to contact me or members of the Brigade Bookkeeping team. We will do the estimating for you, so you can get to actually making money.