Quarterly Estimated Tax Deadline is Approaching - Are You Ready?
Estimated payments to the IRS are due on April 15, June 15, September 15, and January 15, and while many states follow this same due date, they don’t have to. If you don’t make your first estimated payment in April for your current tax liability, you’re going to want to beef up the remaining three estimated payments.
You may be wondering why or if you even need to pay quarterly estimated taxes? If you were earning your income through a “standard” job, your employer would be making tax payments to the state and federal government every time you were paid. Because you’re self-employed, those payments aren’t being made by anyone on your behalf, which is where quarterly estimated payments come in. By paying a portion of your forecasted tax bill each quarter, it means when you get to the end of the year, your remaining tax bill will be much smaller than if you hadn’t made contributions towards it throughout the year. As for if you NEED to pay them - if you expect to owe $1000 or more to the IRS and generally $500 or more to the state, then you need to pay your taxes quarterly.
To avoid penalties for underpaying your taxes, you need to pay at least 100% of the taxes you paid last year, but if you’re making over $150,000, then you need to pay 110% of your tax liability from last year.
For example (making under $150,000/year):
You paid $12,000 in Federal taxes last year (and made under $150,000)
You paid $9,000 in state taxes last year
So this year, you need to pay at least $21,000 to not have any penalties (state and IRS)
You need to pay $3,000.00 for each of the installments to the IRS and $2,250 for each of the installments to the state.
For example (making over $150,000/year):
You paid $24,000 in Federal taxes last year (and made under $150,000)
You paid $12,000 in state taxes last year
So this year, you need to pay at least $39,600 to not have any penalties (36,000*110%)
You need to pay $6,600.00 for each of the installments to the IRS and $3,300 for each of the installments to the state.
Now keep in mind, just because you paid 100 or 110% of your tax liability from last year doesn’t mean you won’t still owe money come tax time in April, it simply means you won’t have any interest or penalties assessed. You can work through the estimated tax worksheets from your state and IRS to forecast what you’ll owe, you can save 30% of everything you make and hope you have enough, OR you can have me help! I offer estimated tax consults and you walk away with an up to date estimate of where you should be, what you should be paying, and strategies for how to make your situation work best for you and your lifestyle! Wondering if a consult is the right fit for you? Book a complimentary 15 minute chat and we can discuss if it’s the right path for you and your business!