When it comes to taking care of obligatory tax balances each year, it is not uncommon for self-employed individuals and business owners to run into trouble with IRS issues whenever tax season rolls around.
Depending on the circumstances surrounding your income, if you fall under one of these categories, you are likely required by the IRS to pay estimated taxes, or quarterly tax payments. This is necessary to report—and pay—for your taxes as you receive your earnings throughout the year. For many, making estimated tax payments to the IRS can feel costly and burdensome. However, when properly prepared for, quarterly payments can work to your advantage.
What You Gain from Paying Quarterlies
The main purpose the Internal Revenue Service requires business owners to pay estimated taxes is to account for their income tax as well as their Social Security and Medicare obligations. The goal is to pay as you go to avoid penalty for underpayment of taxes at the end of the year. In fact, avoiding penalties is one of the biggest advantages to you, the taxpayer.
For example, if you expect to owe $1,000 or more as a sole proprietor or owe at least $500 as a corporation, you may be charged for not paying enough. Additionally, if you request an installment agreement after you file because you are unable to pay the whole lump sum, you will not only be responsible for failure-to-pay penalties, you will also have to pay interest charges as you pay your taxes in the allotted installments.
Thankfully, this is another advantage to you, the taxpayer: The option to pay what you owe in smaller chunks. Quarterly payments allow you to pay off your balance in four divided payments over the course of the year, instead of having to pay all at once when you file your annual return. Between savings on interest charges and underpayment penalties, plus less pressure to pay a large, often overwhelming balance, estimated tax payments prove to be beneficial to many individuals.
Preparing Your Estimated Taxes
Figuring out how much you need to pay in estimated taxes requires you to take your adjusted gross income, taxable income, and deductions into account, along with any credits your business was eligible for throughout the year. Two ways you can calculate the correct amount in preparation for your quarterlies is to use Form 1040 – ES and refer to your previous year’s taxes, provided this is not your first year in business.
One of the best ways to prepare and ensure you are getting as close of an estimate as possible is to work with a competent tax law advisor who can assist in setting up the payments. The official IRS due dates for quarterly payments will fall on the 15th day of April, June, and September, with the fourth and final payment due the following January.
If you are a new business owner and are not sure where to begin or you currently have an estimated tax payment issue as an existing sole proprietor, a knowledgeable Cook County IRS issues lawyer can address your concerns. Call the Law Offices of Eric G. Zelazny today at 708-888-2299 for a one-on-one consultation.