Posted by Jim McClaflin, EA, NTPI Fellow

Paying Estimated Taxes

Paying Estimated Taxes

As a business owner, it is important that you pay all of your bills on time. Whether it is the amount that you agree to pay your employees or freelancers to get the work done, your utilities and mortgage, or some other expense that you have to get paid off each month, a responsible business is able to get these payments done without making anyone fall behind.

Another bill that you will need to worry about when you are working your own business is estimated taxes. While these can be a pain, they are required for most businesses and business owners who work for themselves. This helps you to meet your tax obligation each year without falling behind with all of it. Think of it this way; when you work for another employer, they take so much out of each check in order to pay your tax bill. When you work for yourself, you have to take that money out of your check on your own.

With the proper deductions and credits and with the proper running of your business, you may be able to get some of this money back at the end of the year, but at least you will meet the requirements that the IRS is expecting out of all businesses. When you need help figuring out your estimated taxes and getting those paid off, make sure to contact a tax professional in your area right away.

Figuring Out  Estimated Taxes

The hardest thing for most people to do with their new business is to figure out how much they need to pay in taxes when it comes to the end of the quarter. There are two ways that you can do this. First, you can work with your tax professional to project how much you plan to earn for the year. You can look at how much you have grown for the past few years and use that percentage in this year to get the right tax number or use some other information that you have as an estimation of how much you will make through the year. Then figure out the tax bill and split it up into four parts.

Another method, if you aren’t sure how much you will make this year, is to look at your tax bill from the year before. Separate this out into four parts and then send this in payments. While this may not cover the full tax bill, especially if you make more that year or your tax bracket changes for some other reason, the IRS will not penalize you for making those minimal payments.

If you would like some help getting your estimated taxes figured out for the year, make sure to find a tax professional in your area to help out. They can lead you through the process and ensure you are paying your amount on time.

Sending in Estimated  Taxes

Once you have worked out how much you owe in estimated taxes with your tax professional, it is time to send the money in each quarter. Regardless of the method that is used to figure out your tax amount, you will need to send them in four times a year starting January 15 of each year. Set a reminder for yourself so you aren’t as likely to forget or have your tax professional work with you to ensure that the payments are sent out on time each quarter.

Failure to send in the estimated tax payments when you are supposed to could result in penalties from the IRS. When you are trying to keep your business costs low, this is not a good thing. Make sure that you are not missing out on these deadlines and you will find that it is much easier to get that tax bill paid down.

Keeping Good Records

One of the best things that you can do for your estimated taxes is to keep good records for the business all year long. When you have your records all in place, it is much easier to figure out how much you have to pay in estimated taxes. When you have slacked on your record keeping and the numbers are all over, how are you supposed to know how much you have brought in and how much you can count for the estimated taxes?

If your record keeping is all over the place, now might be a good time to work on it and put it all back together. You can work with your tax professional to sort through the numbers and get everything back on track. This is not going to be easy all of the time, but once you get these numbers all together and organized, you need to keep with this accounting method so you are able to look at any time and see where your business is at. It doesn’t matter whether you or your tax professional takes care of the accounting, just as long as it gets done.

Estimated taxes can be a confusing subject for many new business owners. They may not be used to the fact that they need to pay into the government four times a month in order to meet their tax bill. When you are ready to work on your estimated taxes, or on another issue during tax time, make sure to contact our offices today to get started.

Jim McClaflin, EA, NTPI Fellow
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