Are you self-employed, a partner, or an owner of a business?
If so, one of the most important tax tasks you must accomplish each year is to
pay estimated taxes. What are estimated taxes? Why should you be concerned with
them? And how do you know what to pay? Here's an introduction to estimated tax
payments for the beginner.
What Are Estimated Taxes?
Estimated tax payments are the arrangement by your state
income tax agency and the IRS to make payments toward your tax bill throughout
the year. Most wage earners and salaried workers have a portion of their
projected tax bill withheld from each paycheck. However, because a
self-employed worker, partner, or business owner isn't subject to withholding,
they must send in payments on a regular basis instead.
Why Should You Pay Estimated Taxes?
Estimated taxes are an additional burden for self-employed
persons and business owners and can be complex to figure out. So why should you
concern yourself with them? First, it is mandatory. The IRS, for instance, sets
rules to let you know payment deadlines, how much of your estimated tax bill is
due each quarter, and what percentage of last year's tax bill you must
pay.
Perhaps just as importantly, estimated taxes help you avoid
a huge tax bill in the spring. The goal is usually to have paid your obligation
in more manageable portions throughout the year and have little or no additional
tax due when you file your returns. Meeting this goal also avoid penalties and
fines for underpayment, which may be quite large depending on your
income.
What Are the Guidelines for Estimated Taxes?
If you are subject to them, an estimated tax payment is due
once per quarter. The normal due dates are April 15, June 15, September 15, and
January 15. You pay an equal percentage of your estimated annual tax bill with
each payment unless you have other sources of withholding. However, certain
cyclical businesses or new businesses can sometimes use different schedules
based on when they earn income.
Each state has its own rules regarding when to pay estimated
taxes for state income taxes. North Carolina, for instance, usually follows the
payment schedule set by the IRS.
How Can You Calculate Estimated Taxes?
Most people need help with calculating their estimated tax
liability. It can be difficult to project what you may earn either as a
self-employed person or as a business, especially when new at it. Generally,
you must pay at least 90
percent
of the current year's tax or 100 percent of the prior year's tax
(if applicable) over the course of the year. It may be recommended to
overestimate your bill rather than underestimate it.
The amount of your estimated tax payments is affected by
some other forms of tax payments. If you or your spouse on a jointly-filed
return have withholdings from another job, this may reduce how much you need to
pay in estimated payments. You may also apply overpayments from the prior year
as well as overpaid FICA if you have two jobs. You can also make additional
voluntary payments at any time.
Where Can You Get Help With Estimated Taxes?
Does this sound confusing to you? If so, you're not alone.
Figuring estimated tax payments and executing them can require calculations and
forecasting. The best way to do this is by consulting with an experienced
accountant. They will work with you to ensure you meet your minimum obligations
while avoiding unnecessary overpayments. And they may offer a reminder service
to ensure you don't miss a payment.
Williams
and Associates Tax Services
can help. Call today to make an appointment
with a member of our qualified team.
