When you own a business, taxes become an important topic. You must make sure to pay your taxes on time and in full. If you fail to do so, you could face penalties and fees that can add up fast.
It is well worth your time to look into the benefits of paying quarterly taxes. Doing this can ensure your business stays on top of things and keep your account free from extra charges.
Switching From Annual IRS Tax Payments to Quarterly
If you currently only pay your taxes at tax time every year, you can easily switch to quarterly taxes. The IRS explains you can simply begin making quarterly tax payments using the correct form.
These payments are estimates of what you will have to pay when you file at the end of your business tax year. If you were previously paying taxes, then you should be able to figure out how much you owe by looking at your last tax statement. You can also use a quarterly tax calculator or get information from the IRS.
Keep in mind, you will no longer have to worry about how to pay quarterly self-employment tax because it is part of the estimated tax you will pay. This estimate pays self-employment, income, and alternative minimum taxes. It is the same taxes you would pay if you filed your normal return, but broken down into multiple payments.
You should also be aware that answers to any questions you have, such as how to pay quarterly taxes, 1099 issues, or do I have to pay quarterly taxes, can be found on the IRS website.
You should also consult with your business accountant, who is there for this specific purpose. Do not forget about using your accountant for more than how to get a small business loan.
How to Pay Your Estimated Taxes Quarterly
Before paying estimated taxes, you want to be sure you owe them. If you have a corporation, you should pay if you will owe $500 or more in taxes. For all other businesses, pay if you will owe at least $1,000. Do note that this is the general rule. You should always consult your accountant for what your business should do.
To figure out what you owe, you will use Form 1040-ES. You will need your estimated adjusted gross income, taxable income, credits, deductions, and general tax liability. You can use your previous year’s tax forms as a guide for this information.
When you know how much you need to pay, you can pay quarterly taxes online with the IRS. Pay quarterly taxes through the Electronic Federal Tax Payment System, which is fairly easy to use.
You will pay four times each year. The quarterly taxes dates are:
- April 15
- June 15
- September 15
- January 15
Do note the IRS can change these dates each year. You can always find the current schedule on the IRS website. You should check it every year when filing your tax return.
Avoiding High Tax Penalties
One of the biggest benefits of paying quarterly taxes is avoiding penalties. You will receive a notice from the IRS about the penalty for not paying quarterly taxes. It will often include fees because if you fail to pay, it becomes late.
You will face a penalty for underpayment if you fail to make any estimated payments when required to do so under the law. How much you will pay depends on a few factors. The IRS will use your tax return, once you file, and apply a percentage for each quarter you did not pay.
The penalty and other fees can increase your tax liability substantially. Nobody wants to pay more than they need to in taxes. The best way to avoid this is by making tax payments at intervals throughout the year instead of waiting to pay it all when you file your returns.
The Benefits of Paying Quarterly Taxes
Beyond avoiding the penalties, there are a few other benefits of paying quarterly taxes. These relate to making your business run more effectively and efficiently.
Reducing Tax Liability
If you do not pay your taxes quarterly, you will have a large tax bill when you file your taxes. Even if you are not required by law to pay quarterly, it can still help you out in the long run. It is much easier to make small payments throughout the year rather than be stuck with a huge payment due when you file your taxes in April.
Helping Your Cash Flow
By paying your taxes throughout the year, you can more easily control your business cash flow. You will not end up with a huge surprise at tax time, and you can more easily budget these payments.
This will help you to stay on top of the available capital you have without having to worry about losing a large chunk in April.
Making Taxes Easier
Paying quarterly also makes things easier for you at tax time. You already know what you owe or will have a good idea.
It is simple to figure out what you will owe when you file and start the next year’s estimated payments.
Paying your taxes quarterly may be something new to you, but it is very beneficial. IRS rules require these payments, so if you fail to pay them, you could end up with huge penalties added to your taxes when you do file your annual tax return.
Also, paying quarterly is a good idea if you want to keep your business finances orderly and organized. It simply becomes a normal expense that you can work into your budget.
Your accountant should be able to assist you with this process. He or she can either handle it for you or guide you through the process if you prefer to handle it yourself.
Remember the IRS has plenty of assistance on its website as well if you have questions or need information. Use all the resources available to help you as you transition to paying your tax liability quarter.
Disclaimer: Make sure you consult with a tax consultant about your specific needs and the pros and cons of when you pay your taxes. Only your tax consultant should be providing you with direction of when and what to pay on your business taxes.
About the Author, James Webster
James Webster, founder and Executive Chairman of ROK Financial has almost two decades of experience within the financial services industry. His passion for helping small business owners and his innovative way of thinking, has allowed him to run multiple successful businesses including National Business Capital & Services. Under the National name, the team was able to help secure over $1 Billion in financing for small businesses nationwide.