Quarterly Estimated Tax Payments Q&A
June 10, 2013 by
Michelle Edwards, CPA in
**Disclaimer – This blog post is for information purposes only and should not be construed as tax advice. For tax advice particular to your situation, always contact your accountant.**
Let’s face it, no one is excited to hand over a portion of their earnings to Uncle Sam. However, it’s a duty that we all must face. Let’s talk about the dreaded quarterly estimated tax payments.
What are Quarterly Estimated Tax Payments?
The IRS and your State Department of Revenue prefer to receive their tax payments though out the year, as you make money rather than a lump sum payment at the end of the year. If you are not having taxes withheld from your paychecks, there is a good chance you will be responsible for remitting quarterly estimated tax payments.
Who Pays Quarterly Estimated Tax Payments?
- Individuals & Self-Employed who expect to owe $1,000 or more in taxes when filing their annual tax return are required to pay quarterly estimated taxes.
- Corporations who expect to owe $500 or more in taxes when filing their annual tax return are required to make quarterly estimated tax payments.
When are Quarterly Estimated Taxes Due?
- April 15th (separate payment from your annual tax filing)
- June 15th
- September 15th
- January 15th
How Much Do I Need to Pay?
Ah, an accounts favorite answer… It Depends. This is a tricky one since every business and individual have different tax situations. Yes, I highly recommend seeking the advice from a tax professional. If you’re brave and want to tackle the project on your own, try these DIY options:
- Form 1040-ES is an IRS worksheet that helps you figure out what you owe. If you’re a corporation, you’ll want to try Form 1120-W.
- Look at last year’s tax return. If you’ve been in business a while and do not expect your tax situation to change from last year, the rule of thumb is to pay 100%-110% of what you owed last year.
- If your income fluctuates during the year (i.e. Landscapers are typically busier during the summer months than in the winter months), you can look into making a Quarterly Calculation. You would calculate your tax bill each quarter. The thought process behind this method is you pay more when you’re making money and less when you’re not making money.
Where Do I Submit My Quarterly Estimated Tax Payments?
- Use the payment coupons at the end of Form 1040-ES to mail a check to the IRS.
- Want to pay electronically? Get signed up with the IRS’ EFTPS system.
- Every State is different, so contact your State Department of Revenue to learn how they like to receive quarterly estimated tax payments.
What If I Don’t Pay Enough in Estimated Taxes
Failure to remit enough taxes throughout the year (through wage withholding and/or estimated tax payments) could result in you being charged a fine.
- IRS Guide to Estimated Tax Payments
- Hire a tax professional who can provide you individualized guidance for your specific tax situation.
I agree, paying taxes is not much fun. But I’m always reminded of my wise grandfather who used to say “I’m glad I owe taxes.” He is right on so many levels.