Who Has To Make Tax Estimated Payments? 3 Important Things To Know Now
Most of us only deal with taxes on good ol’ April 15th. But if you’re in business for yourself or have additional income beyond a salary, there might be more you need to know. That is, quarterly estimated tax payments might apply to you.
So who has to make estimated tax payments each quarter?
If you’re self-employed, have income other than a salary (like interest dividends or early retirement withdrawals), or are on a salary and had a tax liability the prior year, then quarterly payments might be in your future.
If any of the above apply to you, and you expect to owe taxes of $1000 or more ($500 for corporations), it’s a good time to start planning for quarterly tax installments.
So how can you get your quarterly tax situation in order so you can and avoid extra hassles and headaches in April?
Here are the top three questions I get from businesses:
How do I know how much to pay (or, what does “estimated” mean)?
If you’re using bookkeeping software like QuickBooks, it’ll automatically track the dollar amount for you. Simply use those numbers as estimates if your business projections haven’t changed much in the last few years.
If you’re working with a CPA, he or she may have vouchers for you that have a dollar amount already in them. So roll with what your CPA has prepared for you.
BUT, if this is your first year in business (or your first profitable year), you likely don’t have that kind of precedent yet. So what do you do?
The IRS breaks it down on the 1040 ES worksheet, which you can find right HERE. If your business is a corporation, form you’ll want is called 1120-W, which can be found HERE.
(Of course, in the grand tradition of IRS worksheets and forms, these can both be pretty complicated. If you take one look at either of these and find your head spinning, you’re not alone! I can help you sort it all out, so schedule a consult here and we’ll take a look at your particular situation and see what’s right for you!)
How do I make the actual estimated tax payment itself?
Check out this link for estimated tax vouchers for 2019. Scroll down to page 11 for the actual form, print it out, and mail it along with your check.
If you’re an online kind of person, find the link to pay right here.
What happens if I miss a payment? Are there penalties?
If you don’t pay enough taxes through withholding and by making estimated tax payments, you may be charged a penalty. There might also be penalties if your estimated tax payments are late, even if you’re due a refund on your end-of-the-year tax return.
(It’s pretty much the IRS saying “hey, you made a lot of money and you didn’t pay us, so here’s a fee for making us wait for our money.”)
So there you have it! The basics on estimated tax payments, and what actions to take to ensure smooth sailing throughout the tax year.
Now, in the video below, I share some tips on how to use estimated taxes as a cash flow planning tool! Watch that right HERE: ⬇️
So, are estimated taxes in your future? If you have questions on your particular situation, leave me a comment below, and we’ll see how we can take the stress and out of quarterly estimated tax payments.
Love, light, and money, honey…
xo
Kaylee