The U.S. had a record number of new business applications last year.
The pandemic has changed the way people earn money, with many starting new business ventures. As a business owner, you may be liable for estimated taxes. If you don’t get this right, you could be in trouble come tax time.
Keep reading to learn more about making estimated tax payments for your business.
What Are Estimated Taxes?
If you run your own business or are self-employed, you are probably required to make estimated tax payments to the IRS. You may also need to pay estimated taxes to your state.
This is because you don’t have an employer who is withholding taxes from your paycheck for you. Rather than paying the taxes you owe when you file your tax return each year, you are required to pay them in advance throughout the tax year.
Who Should Make Estimated Tax Payments?
Whether or not you need to make estimated tax payments depends on the classification of your business. Generally, if your business is taxed as a sole proprietorship, partnership, or S corporation, you will need to pay estimated taxes.
This is true as long as you expect to owe at least $1,000 in taxes when you file your return. You likely need to make these advanced payments to the federal government as well as your state government.
However, if your tax credits and withholdings are equal to the amount of taxes you owed in a prior year, you will not owe estimated taxes to the federal government.
If your business is taxed as a C corporation, you will need to pay estimated taxes if you expect to owe at least $500 dollars.
Most small business entities are considered pass-through entities. This means that it’s the owner rather than the business entity that must pay estimated taxes. If your business is a non-pass-through entity, the business itself must pay estimated taxes.
How Do I Make Estimated Tax Payments?
Estimated taxes must be paid four times throughout the year. These due dates are usually:
- April 15th
- June 15th
- September 15th
- January 15th
However, if your business is considered a Corporation, your due dates are different. They will fall on the 15th date of the 4th, 6th, 9th, and 12th month after the end of your business’s fiscal year.
The IRS will send you payment vouchers at the end of every tax year to help you make your estimated tax payments. You can pay your estimated taxes electronically or by paper filing.
What if I Don’t Pay Enough?
Calculating how much to pay can be tricky, especially during your first year paying estimated taxes. This is why it’s so important to work with a tax professional. If you don’t get it right, you could face penalties for underpayment.
If you pay too much, you are taking money away from your business. When determining how much to pay, you need to take other factors into account including whether you are married and whether you have another job where taxes are being withheld from your paychecks.
Let Us Help You Stay Compliant
As a business owner, figuring out how to pay estimated taxes can seem overwhelming.
Let us take the stress out of your business taxes and eliminate the guesswork. We can help you estimate and make your quarterly tax payments so you don’t owe money come tax season.
Click here to learn more about our services and contact us today.
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