An Entrepreneur’s Guide to Estimated Tax
When we think about business tax, even though we pay different types of taxes throughout the year, we typically think of April 15th - the day your federal taxes are due. But what about estimated taxes? What are they? Did you know they’re due quarterly? Below I’ll break down estimated taxes and the place where most entrepreneurs run into trouble - estimated tax payments.
What are estimated taxes?
Estimated Taxes are a type of tax that individuals and business owners pay on income that is taxable, but has not been withheld via a W2.
What are estimated tax payments?
Estimated Tax Payments are quarterly payments toward the tax your business expects to owe at the end of the tax year for the taxable income you received. Taxable income is any income that you receive through services provided, products sold, dividends received, interest received, or any other income that is not taxed. “Fun” fact: Estimated tax payments can also be made by individuals!
Am I required to pay estimated tax payments?
The vast majority of small business owners and entrepreneurs have to pay estimated taxes every quarter. If you are an individual, solopreneur, entrepreneur, partner, or shareholder who believes you will owe over $1000 in taxes, then you are required to pay estimated taxes.
When are estimated tax payments due?
Estimated taxes are paid in four (4) payments over a tax year. Payments are due based on the following schedule:
- January 1 to March 31 – April 15
- April 1 to May 31 – June 15
- June 1 to August 31 - September 15
- September 1 to December 31 – January 15 of the following year
Note: If these due dates fall on a Saturday, Sunday, or a legal holiday, payments are then due the next business day.
Where do I send my estimated tax payments?
The easiest way to pay your estimated tax payments is through the IRS’s dedicated website.
How do I know how much I owe in Estimated Taxes?
The long version: Small business owners need to estimate the amount of income you expect to earn for the year. You can do this by using for 1040-ES or 1120-W worksheet. Throughout the year, the income you estimated may increase or decrease, so make sure you are revisiting your worksheets and making adjustments to your estimation whenever your gain additional income or your income decreases.
The short version: ComplYant has a free estimated tax calculator to help you figure out the approximate amount of what you should be paying - check it out here!
What happens if I don’t pay my estimated taxes?
If you are an individual or entrepreneur who has made income but does not have taxes withheld through a W2, then you are required to pay estimated taxes on any income you have received over the tax year. If you don’t pay estimated taxes, then you are subject to penalties on the tax you failed to pay, plus interest. Millions of business owners receive penalties plus interest by not paying their estimated taxes; if you can't pay all of your estimated taxes, you should still pay as much as you can, which helps lessen the penalties & interest that are applied.
If you receive income over $1,000, you are required to make estimated tax payments quarterly.