Understanding Estimated Tax Payments
Many Americans are plenty familiar with an age-old tax tradition that comes around once every year. The W-2 arrives in the mail sometime in January, then sometime over the next month, you consult with your accountant, go to H&R Block or power up TurboTax, send off your returns, and in many cases, wait for the refund.
But other Americans have a different experience – one that’s not nearly as easy, and one that involves a little more interaction with the Internal Revenue Service throughout the year.
If you’re a small business owner, or if you do contract or freelance work, you should be intimately familiar with estimated tax payments – and if you’re not, you need to be.
What You Need to Know About Estimated Tax Payments
When you work for a traditional employer, that employer hands you a check with many necessary taxes already taken out – income, Social Security and Medicare, among others. However, that’s not so for many people who work for themselves, whether they own their own business or not. But just because they’re not automatically taken out doesn’t mean the IRS doesn’t want its cut.
If you’re not in a work situation that requires the employer to take taxes out, the IRS wants you to pay estimated tax payments four times a year. So, who all does that entail? The IRS says:
“Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.”
This isn’t merely a suggestion. In fact, you may face tax penalties for not making big enough estimated tax payments, or for not making them at all.
For 2018, the four payment periods are January 1-March 31 (due April 15), April 1-May 31 (due June 15), June 1-August 31 (due September 15) and September 1-December 31 (due January 15, 2019).
So, how much will you owe in estimated tax payments? Individuals can use Form 1040-ES to calculate it, while corporations can rely on Form 1120-W. However, small and midsize businesses may want to rely on professional tax services instead, as a misstep here could result in significant tax penalties, not to mention owing more than you originally planned if you miscalculated. McManamon & Co. offers a full suite of tax services, including helping you prepare for not just the year ahead, but any adjustments to your estimated tax payments over time.
Don’t just guess on what the IRS will need from you this year. Call us at 440.892.9088 or contact us online for all of your small business tax and payroll questions.
Tags: estimated tax payments, McManamon, small business, small business taxes | Posted in accounting, McManamon & Co., small business, small business taxes, taxes