Showing posts with label estimated tax payments. Show all posts
Showing posts with label estimated tax payments. Show all posts

Monday, October 30, 2017

Everything You Need to Know about Estimated Taxes

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.