What Are Quarterly Estimated Tax Payments?
You might have to pay estimated taxes, depending on how much you owe and on your business type. Most small business owners don’t receive paychecks, so income taxes and taxes for Social Security and Medicare aren’t withheld from their pay. The IRS requires taxes to be paid throughout the year, and estimated taxes are the way to make these payments when they’re not withheld. The amount of estimated tax must be calculated to include:
The amount of income you made from the business during a year, and The amount of self-employment tax (Social Security and Medicare) you owe based on that income.
Who Is Required to Make Estimated Tax Payments?
Individuals
Look at your income from all sources, including your business, on your personal tax return. Include self-employment tax, then look at the tax due. The IRS says you must estimate taxes if both of the following apply:
You expect to owe at least $1,000 in tax for this calendar year after subtracting your withholding and tax credits, andYou expect your withholding and credits to be less than the smaller of 90% of the tax to be shown on your tax return or 100% of the tax shown on last year’s income tax return
Corporations and Pass-Through Entities
Corporations (the businesses, not the owners) must make estimated tax payments if the tax due is $500 or more for the year. Businesses that are not corporations are known as pass-through entities. The business’ taxes pass through to the owners on their personal income tax returns. Your business tax is calculated on Schedule C - Profit or Loss for Business if your business is a sole proprietorship or a single-member LLC, which is included with your personal Form 1040 tax return. Your share of the profits of the business is shown on a Schedule K-1 (Form 1065) if your business is a partnership, a multiple-member LLC, or an S corporation. This schedule is also included with your personal tax return when you file.
How Do I Calculate Estimated Tax Payments?
Keep the above numbers in mind as you and your tax preparer work on your business tax return.
You can estimate your taxes using the estimated tax worksheet in Publication 505: Withholding and Estimated Tax if you’re a sole proprietor, partner, or S corporation shareholder. Use Form 1120-W to estimate the taxes you owe if you’re a corporation.
What Are the Due Dates for Estimated Tax Payments?
Due dates for estimated taxes are based on when the income was received:
April 15 for income received for the period January 1 through March 31June 15 for income received for the period April 1 through May 31September 15 for income received for the period June 1 through August 31January 15 of the next year for income received for the period September 1 through December 31
These exact dates can change by a day or two in any given year because taxes become due the next business date when the original dates fall on weekends or holidays. This article includes details on specific business tax due dates for the current tax year.
How Much Should I Pay in Estimated Taxes?
Match your estimated taxes to your income. For example, you can vary the amount of estimated tax you pay for each quarter if you have a seasonal business with more income in one quarter than another. Just remember that you must pay enough tax by each quarterly due date to avoid being charged a penalty. This requirement holds even if you think you might be due a refund at tax time.
How Do I Make Estimated Tax Payments?
Individuals should make their estimated payment on their personal tax returns using Form 1040-ES.
Tax preparation software programs (the business versions) have an estimated tax calculator. How to calculate your estimated tax payments includes several suggestions and resources. Some tips for making estimated tax payments.
Corporations should make payments using Form 1120-W. The IRS will accept the following payment methods:
Check Through the Electronic Federal Tax Payment System (EFTPS) (required for corporate estimated taxes) Direct Pay from your bank account Credit/Debit card
