Okay, so first, a disclaimer: I am not a certified public accountant or a tax professional. I will be providing you with a basic overview of estimated quarterly taxes, but I don’t have knowledge of your individual financial situation, so I strongly encourage you to consult with a tax professional for guidance on when to pay estimated quarterly taxes and how much to pay.
So in case no one’s told you…I hate to be the one to break it to you, but solopreneurs and business owners often have to pay estimated income taxes on a quarterly basis rather than waiting until April 15th like so many people with W2 jobs do. Basically, the IRS does this because you’re not having anything withheld from a paycheck like you would at a W2 job, so this the government’s way of ensuring it gets its money. The bigger that income tax bill racks up, the less likely it is that you’re going to be able to pay it on time. That’s bad for the government, because they need all that money to pay their own expenses (regardless of what you think of how it spends your hard-earned cash), and it’s bad for you because you’ll go into debt, you’ll rack up needless penalties, and if things get really bad you could face jail time, leins on your house, all the bad things.
You may have to pay estimated quarterly taxes if:
- You aren’t on payroll (not having anything withheld throughout the year)
- Your tax owed last year was more than zero.
- You expect to owe at least $1000 in taxes after subtracting any withholding you have had, as well as refundable credits.
You can visit https://www.irs.gov/pub/irs-pdf/f1040es.pdf to calculate whether you might have to pay, using your expected income as a gauge. Income can be hard to predict, so it would be wise to base it off of last year or, if you’re brand new, what you’re currently making, with a little built in cushion for gross. No one expects you to tell the future!
If you DO have to pay these taxes, here are the deadlines:
Income Period: Taxes Due:
Jan. 1 – Mar. 31 April 15
Apr. 1 – May 31 June 15
Jun. 1 – Aug. 31 September 15
Sep. 1 – Dec. 31 January 15 (following year)
Even if you can’t afford your full payment, it’s best to pay off at least some of the amount, since your penalty amount is .5% of the amount unpaid for each month the tax isn’t paid.