Business Owners: Are You Forgetting This Sneaky Tax Due Date?

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Did the title freak you out a little? Sorry about that, but we thought ripping the band-aid off would be the way to go. After all, it’s the truth – if you own your own business, freelance or generally work for yourself, quarterly estimated taxes are due to the IRS and, likely, to your state’s taxing authority right around the corner.

Did you forget about them, or have never dealt with them before? Don’t worry, we’re here to help. We’ll go over what QETs are, why you have to deal with them, and some of the basics of the process to get you started.

The Basics of Quarterly Estimated Taxes

Remember back when you had a 9 to 5 or even when you worked at that fast food joint downtown while you were in high school? At the end of the pay period your boss took out a certain percentage from every paycheck to pay taxes to the government. Afterwards you got to take home what was left.

Now that you own your own business, you don’t have a boss to do this for you. This means you have to do it yourself. However, it doesn’t quite work the same as it did back then. You don’t submit your taxes every two weeks or even every month.

If you own an (for example) online coffee cup shop, every time you sell a coffee cup you might think you need to submit taxes. But that would get even more complicated than it already is, which is why the QET system was set up.

Every quarter you send in a payment to the government to take care of your tax responsibilities. January, April, June and September become your “buckle down and take care of business” months from now on.

How QETs Work

So if you don’t remit tax payments every time you make a sale, how do QETs work? If it’s your first time ever doing them it can be extremely confusing, but once you get the hang of it everything will fall into place.

The biggest thing to remember is the word “estimated.” This is precisely what these payments are – estimations, as in you’ll hardly ever run into a payment that’s 100% accurate the first time. This is because you basically take your profit from the year (that’s income minus business expenses), figure out what you would owe on taxes on those sales, and then divide by four to get your quarterly estimated tax payment.

You can probably see how this would cause unbalance. You may make most of your profits in the 4th quarter, or you may shut your business down over the summer. Therefore, this “estimate” may be a little off.

Fortunately, there’s the “Safe Harbor Rule” the IRS has put into place. As long as you submit the same amount in taxes as you owed the the year before, you won’t be charged any fees or penalties. As an example, if you accumulated a $5,000 tax bill last year, but business boomed and you owe $10,000 this year, you’ll be fine as long as you pay at least $5,000 over the year in quarterly estimated tax payments. However, you’ll have to pay up the remaining $5,000 when all is said and done and you file your annual taxes on April 15th.

The good thing about this mess, though, is that it can help you get your finances in order as well as prepare you for tax season. When the time rolls around, you’ll be so used to figuring out this kind of stuff that it’ll be a breeze.

Here’s a calendar to keep you up to date:

Q1 – April  15, 2014 (you should have already paid this one on income made from January 1 -March 31, 2014!)

Q2 – June 16, 2014 (pay on income made between April 1, 2014 and May 30, 2014; this due date falls on the 16th because the 15th is on a Sunday)

Q3 – September 15, 2014 (pay on income made between June 1 and August 31, 2014)

Q4 – January 15, 2015 (pay on income made between September 1, 2014 and December 31, 2014)

What questions do you have about QETs?

September is Tax Time: Understanding your Quarterly Estimated Taxes

If you are self-employed, a sole proprietor, a partner or an S-corporation shareholder, you may need to pay quarterly taxes. Use our helpful guide to ensure you don’t miss the deadline!

If you run your own business or are otherwise self-employed, chances are you’re required to pay quarterly estimated taxes. Instead of having a certain percentage withdrawn from each paycheck for taxes, you’re responsible for saving and paying the IRS at intervals throughout the year. This can seem like a confusing and frustrating process, but it doesn’t need to be!

If you are self-employed, a sole proprietor, a partner or an S-corporation shareholder, you may need to pay quarterly taxes. If you anticipate owing more than $1,000 in taxes at the end of the year, you definitely need to make quarterly tax payments. Form 1040-ES will help you determine and pay any taxes that may be owed.

Quarterly estimated tax payments are due on the 15th day of the months of January, April, June and September. Even if you expect to receive a refund at the end of the year, it’s still crucial to make your quarterly tax payments on time. If you don’t, you could face a hefty penalty by the IRS.

You will also face penalties if you miss any of the quarterly estimated payment due dates. It’s not okay to save up and pay your taxes as a single payment at the end of the year. If you do this, you may be subject to additional penalty fees and interest. Do your best to pay on time every quarter to avoid pointless penalty fees.

Begin by taking a look at last year’s tax return and estimating what you expect to make in the current year. Each quarterly payment should be roughly 30% of your taxable income for the previous quarter. Keep in mind that depending on your state, you may need to pay quarterly state taxes as well.

It can be difficult to save 30% of everything you make, especially if you’re a freelancer or small business owner with revenue that continually fluctuates. Even if you’re unable to pay the total amount due each quarter, it’s advisable to pay as much as you can. IRS penalties may be avoided if at least 90% of the monies owed have been paid throughout the year.

It’s better to overestimate your annual income than underestimate it. In your first few years of business, it may be difficult to see a growth pattern when it comes to your revenue, so err on the side of caution and assume you’ll make slightly more this year than you did last year. If something amazing happens and you experience exponential growth, you can make adjustments to your quarterly taxes by filling out a new 1040-ES form.

A good way to ensure you have enough saved to make quarterly estimated tax payments is to open a separate savings account specifically for tax payments. When you receive money from a customer or client, automatically transfer 30% of that payment to your tax savings account. It may not be fun, but you’ll be glad you paid on time when your refund arrives! Also, don’t forget to track receipts and expenses throughout the year so you’re always prepared come tax time.

What questions do you have about quarterly estimated taxes?

Quarterly Estimated Taxes are Actually Your Friend

How are you supposed to grow your business if you’re spending time every few months worrying about and dealing with taxes? Learn why quarterly estimated taxes are actually good for your business, as well as how to make filing them less of a hassle.

This guest post is brought to you by Outright, the alternative to Mint for business and the simplest way to handle your small business taxes online. Sign up today for a less taxing tax time!

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.