Business and a self-employed individual must estimate the federal income tax liabilities. The income and expenses may not be the same as planned for a particular year. Your business may have a banner year and need to increase the 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 you need to be careful not to pay too much so, IRS keep your money for twelve months at zero percent interest rate.
So, careful estimation of quarterly tax liabilities may help you to pay slightly different dollar amounts each quarter.
Here are six useful tips to pay estimated taxes:
When it applies?
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 the tax?
As a business owner or self-employed individual, you need to estimate the annual income expected for the year. You need to take care of the eligible tax deduction 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 expense make it easy to estimate quarterly tax payments and correct the for each quarter. Better you keep 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 set money aside for estimated tax payment quarterly in a separate account from income generating from the business.
When to make payments?
The IRS requires that an individual should estimate the total income of the year and divide them equally into four quarters and pay those installments. There are four quarterly payment due –
April 15
June 15
September 15
January 15 of the next year.
But under some circumstances, you make unequal payments when previous year 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 increase in earning in business.
Convenient payment methods?
The Internal Revenue Service allows payment of the estimated quarterly tax online through your debit and 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 for non -availability of funds.
Earning reward, points and cashback offers.
You can even opt to pay via the Electronic Federal Tax System which draws fund from a prearranged account after receiving confirmation by phone or an Internet request.
