Whether you are a contractor, small business owner, or self-employed individual, navigating the world of taxes can be challenging. Among the various tax obligations, quarterly taxes are an essential aspect of managing your finances responsibly. In this blog, we will review the details of quarterly taxes, providing you with a comprehensive understanding to help you fulfill your obligations efficiently.
What Are Quarterly Taxes?
Quarterly taxes, also known as estimated taxes, are payments made to the IRS quarterly by self-employed individuals, freelancers, and business owners who don’t have taxes withheld from their income. People who earn income through self-employment opportunities are responsible for paying and keeping up with their taxes throughout the year unlike traditional employees who have taxes deducted from them on their paychecks.
Who Needs to Pay?
If you are expecting to owe $1,000 or more in taxes when you file your annual return, you are required to make quarterly tax payments. This applies to:
- Self-employed individuals
- Freelancers
- Independent contractors
- Sole proprietors
- Partners in partnerships
- S corporation shareholders
When Are Quarterly Taxes Due?
Quarterly tax payments are due four times a year, typically on the following dates:
- April 15: Covers income earned from January 1 through March 31.
- June 15: Covers income earned from April 1 through May 31.
- September 15: Covers income earned from June 1 through August 31.
- January 15 of the following year: Covers income earned from September 1 through December 31.
If the due date falls on a weekend or holiday, the deadline is typically extended to the next business day.
How to Calculate your Quarterly Taxes
The first step is estimating your annual income and taxable income. This will help you determine your tax liability. Once you have this information, you will be able to make quarterly tax payments based on your estimates. A simplified method to help you calculate your quarterly tax payments follows:
- Estimate Your Annual Income: Project your total income for the year, including earnings from self-employment, investments, and any other sources.
- Calculate Your Taxable Income: Subtract any deductions and credits you expect to claim from your estimated annual income. This gives you an estimate of your taxable income.
- Determine Your Tax Liability: Use the IRS tax brackets and rates applicable to your filing status to calculate your estimated tax liability.
- Divide by Four: Divide your estimated tax liability by four to determine your quarterly tax payment.
Things to Consider when Paying your Quarterly Taxes
- Stay Organized: Maintain accurate records of your income and expenses throughout the year to ensure accurate tax calculations and reporting.
- Reference IRS Forms: Fill out Form 1040-ES, Estimated Tax for Individuals, to calculate your quarterly tax payments accurately.
- Recognize Tax Deductions: Take advantage of deductible expenses such as business-related expenses, retirement contributions, and health insurance premiums to reduce your taxable income.
- Make Changes as Needed: Review your income and expenses regularly and adjust your quarterly tax payments to avoid underpayment penalties or overpaying.
How To Pay your Quarterly Taxes
There are multiple ways to file and pay your quarterly taxes including:
- Electronic Payment: Use the Electronic Federal Tax Payment System (EFTPS) to make secure online payments.
- Direct Pay: Make payments directly from your bank account using the IRS’s Direct Pay service on their website.
- Credit or Debit Card: Pay with a credit card or debit card through IRS-approved payment processors. Keep in mind that processing fees may apply for these options.
- Check or Money Order: Mail your payment along with a payment voucher from Form 1040-ES to the IRS.
The Consequences of Not Paying your Quarterly Taxes
Failure to meet quarterly tax obligations can lead to interest charges and penalties. Even if you can’t pay what you owe entirely, it is important to abide by the due date. If you are a qualified taxpayer, you can apply for a payment plan through the IRS to help meet your obligations.
Get Connected Today!
Contact Gift CPAs for more information on our full scope of accounting and business services. We have years of experience working with small businesses to help with bookkeeping, taxes, and other business needs. Make an appointment to meet virtually or at one of our five locations in Harrisburg, Mechanicsburg, Myerstown, Ephrata or Lancaster!
