As if one major tax deadline isn’t enough, you can imagine my horror as I discovered Quarterly Estimated Taxes. If you’re one of the millions of self-employed or small business owners, then you’ve probably dealt with these additional tax deadlines. But for those that are new to QET’s or aren’t as tax savvy as you’d like to be, rest assured. I’ve complied some rules and resources in efforts to help get you ready for the upcoming deadline.
Rule #1: Know whether or not you qualify.
I’ve read too many horror stories about the person who had no idea they needed to make tax payments for both income and self employment taxes. Whether or not you need to make quarterly estimated tax payments is based on three criteria:
- What you expect to owe (if anything) when you file your current year tax return
- What you expect your current year tax liability to be
- What your prior year tax liability was
A side note: If you happen to be a farmer or commercial fisherman, different rules apply to you.
Rule #2: Keep your invoices and receipts organized.
Keeping an organized system of your receipts enables you to have proof of purchase for warranties, proof of major expenses, expense reimbursements, and tax deductions. Also, your chance of misplacing or losing an important invoice is automatically reduced, which will help you avoid number discrepancies and tax penalties. You can even manage all of your data online, simply by scanning or sending in all of your documents for filing to services such as Shoeboxed. Being able to keep track of all of your receipts online makes it a lot easier and faster to calculate your income for your estimates filing.
Rule #3: Be sure to set aside funds for these tax payments.
As obvious as this seems, you’d be surprised at the amount of people who have set aside the money and then used it as a down payment on a home, yacht, or to buy shares in a sketchy investment scheme.
Rule #4: Figure your estimated tax using the IRS’s Form 1040-ES.
To figure this, you must calculate your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits from the prior year as a starting point. Use your prior year’s federal tax return as a guide.
Rule #5: Be aware of the deadlines and submit your payment online.
The year is divided into four payments, with the third deadline on June 15th. Using the Electronic Federal Tax Payment System is the easiest and most efficient way to submit your tax payment.
If the DIY approach isn’t for you, a helpful resource is Teaspiller. You can still and manage all of your documents online, but with unlimited phone and email support from a tax expert. The service is even integrated with Shoeboxed, enabling you to use your imported data to link your accounts with Teaspiller.