Filing Taxes: The Importance of Paying Your Estimated Quarterly Taxes

September 01, 2015 10:47 AM Published by Ashley Logan

Filing your quarterly taxes (1)

Why paying your estimated quarterly taxes throughout the year will ease your stress for next tax season

Whether you’re an S-Corp business paying a handful of employees, you manage your business through an LLC, or operate as a sole-proprietor, owning your own business is sure to be a great achievement and extremely fulfilling. However, no matter the joy that owning your own business may bring, every business owner with money coming in the door is subject to the dreaded time of the year we’re sure is the reason for “that one gray hair we spotted last week,” tax season.

As a small business owner, your dollars earned are most likely not subject to withholding, thus it’s crucial to ensure you are setting aside a proper amount for taxes, and better yet, paying your estimated quarterly taxes (quarterlies) throughout the year. Otherwise, you could be responsible with scraping together much more money than you've set aside, which can be tremendously stressful. But we've also been there, and want to be a resource for other small business owners and freelancers who may not have a pulse on the quarterly tax world. To help, we’ve put together some commonly asked questions and answers to ease the burden and prepare you for your 3rd quarterly of the year – September 15th!

**Please note, we are not tax professionals and recommend contacting a professional if additional questions, clarification and assistance results from your reading of this article.

What exactly are quarterly estimated taxes?

Businesses and sole-proprietorships that generate income, not subject to withholding, are expected to save and pay estimated quarterly taxes. The amount is estimated because your total income, expenses, and deductions will be reassessed after year-end, and you may be issued to pay in more or receive a refund on your annual tax return.

Estimated taxes are used to pay income tax and self-employment tax, in addition to other taxes reported on your return, given the amount of income you earned throughout that quarter. Note, additional forms of income may include rent, interest, dividends, capital gains, and prizes. Generally, quarterlies are estimated based on income and deductions from the prior business year, but given the chance of unpredictable income, it’s important to keep an eye on those financial matters to ensure you’re saving properly.

How much is recommended for setting aside?

This depends on how much revenue you’re bringing in, if you have employees, and the overall legal structure of your business. For the scope of our small business LLC and sole-proprietorship audience, we recommend 30% to err on the side of caution. If you are really unsure, we highly recommend consulting with a tax advisor. They will assess your current situation and provide you certified, professional advice.

Take the recommended amount immediately from your paycheck and place it in a savings account that you won’t touch until your quarterly is due. Many online banks allow you to open up additional savings and checking accounts for free.

When are quarterlies due and how do I pay them?

Quarterly payments are due April 15th, June 15th, September 15th, and January 15th of the following year. Visit the IRS Payments website to see the many ways you can make estimated quarterly tax payments.

Why are quarterlies important?

Paying your taxes properly and on time will ensure you avoid underpayment penalties. This is a small penalty, adjusted to your income level, which is added to your tax return for not paying or underpaying your estimated quarterly taxes. Not only will you avoid such unnecessary fees, but you will also soften the burden when your annual tax return comes around. Paying quarterlies throughout the year will ensure enough money is saved to pay your total annual tax amount. You may even see some money come back to you in the form of a refund. We know this isn’t “additional income”, but you can’t deny the pleasant surprise, similar to finding a five dollar bill in the pocket of an old pair of pants.

How can I stay on top of my bookkeeping?

It’s a great idea to keep track of your income, expenses and other possible deductions as you perform business functions throughout the year. There are a number of bookkeeping software options out in today’s market for small businesses. You can outsource your bookkeeping by connecting with trained individuals of the software service you use. If outsourcing isn’t an option, find a program you like, dive in and get comfortable. The best bookkeeping software is the one that you will use! Here are a few of our recommended bookkeeping platforms that make paying Uncle Sam a breeze:

QuickBooks, FreshBooks, Wave, Xero, Outright

All programs offer a free trial. – We recommend trying out the programs to find the one you understand the best and will use consistently.

Taxes, accounting, and bookkeeping is understandably the least glamorous side of owning your own business; though, arguably one of the most important tasks you will need to complete in running your business. Stay on top of your business’s financial matters and tax deadlines, and you will find you will have a great deal of freedom to create and run the business of your dreams. With financial organization, diligent savings, and payment of quarterly estimated taxes, your future self will be thanking you. Set aside a couple hours this week to get your numbers in order. – Good luck!

Tags: Doing Business, filing quarterly taxes

This post was written by Ashley Logan


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