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Argh! Yet another tax deadline is coming up and you’re about to tear your hair out from dealing with the last tax time debacle. It seems like that’s all you do anymore is handle tax issues – how are you supposed to sell anything if you’re always crunching numbers and sending money to people?
The worst of this tax craziness for small business owners and freelancers is the quarterly estimated tax, or QET. This is a seemingly mysterious and infuriating tax payment that pops up all the time to completely derail your business week. Worse, the “estimated” part of this tax payment means there’s no concrete dollar amount to send to the IRS and your state taxing authority. How are you supposed to deal with them and run your business?
Well we’re here to tell you QETs not only aren’t that bad – they can actually be your friend too! Let’s take a look at these semi-monthly payments and how they can benefit your company.
What Are Quarterly Estimated Taxes?
Quarterly estimated taxes are the government’s way of taxing small business owners and freelancers. The U.S. has a “pay-as-you-go” tax system. When you were a W-2 employee, your employer took taxes out of each paycheck and remitted it to the government. Now that you’re self-employed, you’re responsible for doing that yourself – every quarter.
Every few months you have to figure out how much money you would have owed to the government if the money you’d made was instantly taxable. Another way to look at it is to figure up how much you will owe to the government in April income taxes and then divide that number by four. Then you send in that payment so they don’t come after you with fees and penalties at the end of the year.
How QET’s are Your Friend
So how in the world could a tax payment that comes up every few months ever do you any good? While it may seem like it’s nothing but an annoyance, there are a few benefits to keeping up with your QETs.
The most obvious is you don’t want to get behind because you’ll owe the IRS a ton more money if you put it off. Yes, you can actually put the payments off and wait until April to do everything. However, this comes with penalties and interest payments, so it costs much less to pay quarterly.What this does is force you to become more organized with your receipts and important documents. Since filing for QETs involves all the paperwork from your business, you need everything in order. The longer you wait to make these payments, the more you realize being disorganized just isn’t worth it. After you set up a good filing system, make sure to keep up on it so future payments go smoothly.
Linking your business bank accounts to Outright allows you to keep up with your small business finances as you go, so there’s no big rush to crunch all of your numbers right before one of the quarterly estimated tax deadlines. And with an Outright Plus account, Outright will even calculate how much quarterly estimated taxes you owe, saving you from deciphering the IRS’s formulas.
How to File Your Quarterly Estimated Taxes
As for sending it in, the best way to go about it is the EFTPS. It’s a system set up by the Department of Treasury for taxpayers to pay the IRS as quickly as possible. Just set up an account and you can be done with the whole ordeal in no time flat. But be warned that setting up an account takes time and involves receiving a pin number in the mail, so sign up well before the next quarterly estimate tax due date on June 15.
If you live in a state that charges income tax, you may be responsible for paying quarterly estimated taxes to the state, too. Check with your state’s taxing authority to find out if they also allow online payments.
For more info on quarterly estimated taxes and all the other fun taxes small business owners have to deal with, check out Outright’s Online Sellers Tax Guide.