A business and a self-employed individual must estimate their federal income tax liabilities. The income and expenses may differ from what was planned for a particular year. Your business may have a banner year and need to increase quarterly payments. Or your business does not earn income as expected, so you don’t need to pay as much as earlier.
So, as a business owner or self-employed individual, you should at least pay quarterly income tax to the IRS every year to avoid penalties and interest for underpayment of estimated taxes. Try to figure out close to the right taxable amount, so you owe a little when you file for a return next year. Even though you need to be careful not to pay too much, the IRS keeps your money for twelve months at a zero percent interest rate.
So, a careful estimation of quarterly tax liabilities may help you pay slightly different dollar amounts each quarter.
Here are six useful tips for paying estimated taxes:
When does it apply?
Any business must pay estimated taxes if it expects to owe more than $1000 in a given year after deducting withholding and refundable tax credits.
How can I figure out the tax?
As a business owner or self-employed individual, you need to estimate the expected annual income for the year. You need to take care of the eligible tax deductions and credits applicable.
How can I figure out the right amount of estimated tax payments?
To ensure estimating the right amount of estimated tax on business, you must keep bookkeeping quarterly, not just every year. Tracking business income and expenses makes it easy to estimate quarterly tax payments and correct them for each quarter. It’s better to keep up with your bookkeeping for tax purposes. Also, it provides vital information about your business for decision-making.
What can make quarterly payments easier?
It is very tough for a business to make estimated payments while earning income. A quick solution is to set money aside for estimated tax payments quarterly in a separate account from income generated by the business.
When should I make payments?
The IRS requires that an individual estimate the total income of the year, divide it equally into four quarters, and pay those installments. There are four quarterly payments due:
April 15
June 15
September 15
January 15 of the next year.
But under some circumstances, you make unequal payments when the previous year’s overpayment of tax is credited to the current year’s estimated tax. Also, when you do not figure out your tax payments until after April 15, and also when you increase your earnings in the business.
Convenient payment methods?
The Internal Revenue Service allows payment of the estimated quarterly tax online through your debit or credit card. Card payments are a convenient option that has many benefits over payments via phone, online transfer, or e-filling. It benefits you:
Documented payment proof.
Avoid delay due to the non-availability of funds.
Earning rewards, points, and cashback offers.
You can even opt to pay via the Electronic Federal Tax System, which draws funds from a prearranged account after receiving confirmation by phone or an Internet request.
