As a business owner or as someone who is otherwise
self-employed, you have a lot on your plate and a lot to keep track of. One of
those tasks that you can’t overlook is making estimated tax payments to the
IRS. If you fail do so, you may find yourself paying interest and penalties
come tax time. As such, it’s important to make sure that you understand
estimated taxes and what your responsibilities related to them are.
The Basics
Just in case estimated taxes are a new concept to you, they
are basically taxes on income that is not going to be withheld.
When you are self-employed or own your own business, you do
not have someone to take out your federal income taxes and state taxes the way
you would in a standard employee/employer situation. Thus, you are expected to
pay estimated taxes on your income and on certain other forms of gain as
required by the IRS.
Plus, not only do you have to pay taxes on your income, but
you also have to pay the self-employment tax, which is a Social Security and
Medicare tax.
Exceptions to the Rule
Of course, there are some circumstances in which you may not
have to make estimated tax payments. If, for example, you meet all of the
following requirements, you can skip estimated tax payments:
l
You were not required to pay taxes the year
before
l
The last tax year covered a full twelve month
span
l
You were a US citizen/resident for the entire
previous tax year
If you are not sure how these exceptions apply to you or if
they do, remember that it’s always best to check with a tax professional to be
sure.
Paying Your Taxes
If you do ultimately determine that you have to pay
estimated taxes, be aware that they are due four times each year. The first
payment comes on April 15th and covers your earnings from the
beginning of January until the end of March. This is followed by a June 15th
payment (for earnings from April to the end of May), a September 15th
payment (for earnings from June through the end of August), and a January 15th
payment (for earnings from September through the end of December).
As payment time nears, make sure you have worked out any
issues or concerns with a tax professional so that you can ensure your
estimated tax payments are taken care of fully and correctly.