Estimated tax payments, every one’s favorite topic, right? NOT. However, they are an important aspect of owning and managing a business. One area that many individuals and businesses forget to account for is making sure they are paying in to the federal and state the correct amount of estimated tax payments through out the year to cover for income made. So, let’s delve a little deeper into this topic.
What is an estimated tax payment?
Estimated taxes are a way of paying income tax on income that was earned but has not had anything withheld on it. So, imagine you are an employee. When you get a paycheck (“income” for your personal household) your employer will withhold federal and state income taxes from this check and pay it to these agencies on your behalf. This then will show up on your tax return at the end of the year and can even result in a refund. So, as a business owner or income earner with no withholding, estimated payments are needed to pay those federal and state income taxes.
Who pays estimated tax payments?
Estimated tax payments can be paid by anyone who has income that does not have withholding. This includes self-employment, business earnings, interest, rent, dividends and other sources. Estimated tax payments must be paid if you expect to owe at least $1000.00 in tax for the current year after subtracting previous withholding and refundable credits.
How much should you pay?
This is a loaded question, but typically it is paid in four equal installments based on either prior year income tax calculations or current year. This is an important conversation to have with your tax accountant to ensure that you do not receive a penalty for not paying in enough throughout the year.
When are they due?
Estimated tax payments are due four times a year. They are not on your typical quarter end dates, so the dates below are important to note:
June 15, 2018
September 17, 2018
January 15, 2019
Therefore, don’t forget to include these payments in your business strategy and personal finance planning. They are important. If you have any questions regarding estimated tax payments, please feel free to contact us!
Written by: Kelly Johnston