Timing Your Taxes: How to Stay One Step Ahead of Uncle Sam
Taxes are all about timing. Planning ahead throughout the year is the best way to stay ahead of the game and ensure that you’re never stuck owing more than you can afford. As a small business owner, it’s also essential to stay on top of tax documents for your employees and independent contractors, whose own taxes and the ability to file will be dependent upon your timing.
Quarterly Tax Payments
Paying quarterly taxes is one of the best ways to avoid “tax shock” – that sinking realization that you owe way more than you can currently afford to pay. If you work as a freelancer or small business owner and are responsible for paying your own taxes, it’s a great idea to have a percentage of each payment set aside for quarterly tax payments.
Quarterly tax payments are due four times per year. For 2013, the dates are as follows:
January 15th, 2014
Determine your estimated quarterly payments by evaluating your income over the past 12 months. With taxes, it’s better to overestimate than underestimate, since the IRS will reimburse you for anything you’ve overpaid. Finally, if a payment date looms and you simply don’t have the scratch, don’t worry – pay as much as you can, and make up the difference the next quarter.
1099s and W2s
As a small business owner, chances are that throughout the year you’ve enlisted the service of independent contractors to help you with everything from online marketing to web design. You may even pay some of your regular employees as independent contractors, or employ a mix of regular employees and freelancers.
Independent contractors will need to receive a 1099 form from you, while part time and regular employees will need to receive a W2.
Your tax professional can help you prepare these forms. All they will need is the information the contractor provided you on his or her W9 – legal name, address and social security number. When it comes time to create 1099s, your accountant will ask you to provide the dollar amount paid each contractor in the previous tax year. He or she will then create the 1099s, send them to you for approval, and mail them to each independent contractor.
For W2s, your tax professional will also include a breakdown of the employee’s taxable wages, including their contributions to social security, federal income tax withheld, medicare, and dependent care benefits.
For the 2012 tax year, 1099s and W2s were due to contractors by January 31, 2013. If you failed to file these forms by the due date, you may be charged late fees and penalties depending on how late the return is. If you’re late, the IRS will ask you to give a reason as to why you were prevented from filing on time. If don’t have a good reason, you’ll be charged anywhere from $15 to $50 per form, depending on when you finally file.
Filing an Extension
If your small business operates as a corporation, you have until March 15, 2013 to file for an extension. If you operate as a partnership or as an LLC that is taxed as a partnership, you have until April 15, 2013 to file for an extension.
Here’s the kicker – filing form 7004 and receiving an extension until August or September does not mean you don’t have to pay taxes until August or September. The extension granted by the IRS is on the paperwork portion of your return, not on the taxes owed by your business.
So plan ahead and make sure that, if nothing else, you at least have enough money saved to make your estimated quarterly payments. Uncle Sam doesn’t mind waiting for the paperwork, but he’s not a fan of waiting to get paid.
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