Quarterly Income Taxes – Did you know?
Can you believe it’s the end of January already? Chances are, you’ve got 1040s and Schedule Cs or 1120s on your mind, but if you didn’t pay quarterly estimated taxes for last year, you may be in for a surprise - and not the kind that involves cake…we're talking penalties and fees.
So, it turns out the IRS isn’t very patient. Who knew? They are not content to wait until April to get their(YOUR) hard-earned money. In fact, if you fall into the categories below, they want that money in 4 installments through the year, known as Quarterly Estimated Taxes. So, heads up if you:
a) Are an Individual, Sole Proprietor, Partner, or sCorp shareholder
b) Expect to owe more than $1000 in taxes for the previous tax year
c) Paid more than $0 in taxes last year
Is there a chance you DON’T have to pay? Of course! There is also a chance you’ll win the lottery! Ok – your chances of not owing quarterly taxes are slightly better than becoming an instant millionaire. You are off the hook if you meet ALL of the following conditions:
1. Owed $0 in taxes last year (or weren’t required to file)
2. You lived in the U.S all year or were a U.S. citizen the whole year
3. If your tax year covered the whole 12 months
If even one of those doesn’t apply to you, you will need to start making quarterly estimated payments this year.
If you’re not one of the lucky ones and you are required to pay, how do you know how much you will owe? The IRS provides a handy form to help determine that amount (Form 1040-ES), although 2018’s doesn’t seem to be available yet - keep checking. Generally, you can take what you expect to owe for 2017s taxes, multiply by 110%, and divide by 4 to determine what you’ll owe quarterly.
The due dates for 2018 estimated quarterly taxes are:
1st Quarter: April 17, 2018
2nd Quarter: June 15, 2018
3rd Quarter: September 17, 2018
4th Quarter: January 15, 2019
How do you make payments? The IRS has set up a relatively easy online portal for this purpose. New enrollment can take up to 5 business days, so make sure you don’t wait until the last minute! Visit EFTPS.gov and click “Enroll” to get started.
Want to owe less? Make sure you’re taking all of the deductions you (legally) can! The best way to do that is keeping up on your expenses through the year so you don’t miss any deductions. Of course, the best way to keep up on your books is to work with a qualified bookkeeper!
If all of this seems a little overwhelming, never fear! Your bookkeeper can also help estimate what you’ll owe, enroll you in the EFTPS payment system, and schedule your payments for you.
For more information, visit https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes