Navigating through Quarterly Estimated Taxes

Staying on top of your financial obligations is essential. When you are self-employed or earn income that is not subject to withholding taxes, you are required to pay quarterly estimated taxes to the IRS. This proactive approach ensures that you are meeting your tax responsibilities throughout the year, rather than facing a hefty tax bill when filing your taxes. In this guide, we will break down the concept, helping you understand how they work and why they matter.

Quarterly estimated taxes are a way for individuals and businesses to pay their income tax liabilities in smaller, manageable amounts throughout the year. The IRS requires these payments if you expect to owe at least $1,000 after subtracting any withholding and refundable credits, or if you anticipate your withholding will be less than 90% of your current year’s tax liability, or 100% (110% if AGI is over $150,000) of last year’s tax liability.

Quarterly Deadlines:

The IRS has set four payment deadlines for quarterly payments, spaced out across the year:

• Q1 April 15th,covering income earned from January 1st to March 31st.
• Q2 June 15th, applies to income earned from April 1st to May 31st.
• Q3 September 15th,  covers income earned from June 1st to August 31st.
• Q4 January 15th, includes income earned from September 1st to December 31st of the previous year.

Calculating Quarterly Payments:

To calculate your estimated tax payments, you can use Form 1040-ES, which provides instructions and worksheets to estimate your income, deductions and credits. This will be based on your income from the previous year. However, if your income is variable or this year you have different complexities, you may need to make adjustments to project your tax liability accurately.

Consider some of the benefits of compliance:

• Avoid penalties. Meeting the payment deadlines helps you avoid underpayment penalties from the IRS.
• Smoothing Financial Burden. Quarterly payments distribute your tax liability evenly throughout the year, preventing a large financial burden at tax filing time.
• Financial Planning. Regular payments allow for better financial planning and budgeting, reducing any risk of unexpected tax bills.

Quarterly estimated taxes are a key aspect of responsible tax management for self-employed and with income not subject to withholding. Understanding the concept, adhering to the deadlines and accurately estimating your payments, will let you navigate this tax requirement with confidence.

As with any tax-related matter, it is better to consult with a tax professional. Our team of experienced professionals make the estimated numbers for you and guide you through the process. Are you ready to start? Contact us below!