As a business owner or freelancer, you may be required to make estimated quarterly tax payments. According to the U.S. Internal Revenue Service (IRS), most people who are expected to owe at least $1,000 in taxes are typically required to make them. You’ll still have to file your taxes by the same due date as everyone else (usually around April 15), but you’ll have to make four payments to the IRS beforehand. What are estimated quarterly tax payments?
The Basics of Estimated Quarterly Tax Payments
Estimated quarterly tax payments are exactly what they sound like: payments to the IRS for taxes that you expect to owe. They are made on a quarterly basis. Taxpayers who are required to make estimated quarterly tax payments must submit them to the IRS once every four months. Estimated quarterly tax payments include income taxes, self-employment taxes and other forms of “owed” taxes.
How to Calculate Estimated Quarterly Tax Payments
One of the challenges business owners and freelancers make when preparing to submit estimate quarterly tax payments is calculating them. After all, taxes are based heavily on income. The more money you make, the more taxes you’ll owe. Business owners and freelancers, though, may not know how much money they’ll make in a given year — at least not until the end of the year when they can review their revenue and expenses.
The IRS still requires business owners and freelancers to make estimated quarterly tax payments. According to the IRS, these payments can be calculated using the previous year’s tax return. In other words, you can check to see how much money you made last year. If you expect your business to grow slightly, you may want to increase this number a little. If you expect your business to contract slightly, you may want to decrease this number a little. Regardless, you can refer to your tax return from the previous year to calculate this year’s estimated quarterly tax payments.
What Happens If You Don’t Pay
Failure to make estimated quarterly tax payments may result in a penalty The IRS typically charges taxpayers a penalty for missing estimated quarterly tax payments, paying them late or paying too little. Therefore, you should get into the habit of paying the necessary amount on time. The penalty is based on the owed amount. The more you owe, the more expensive the penalty will be.
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