Working for yourself has so many benefits. The freedom of being a business owner cannot be understated. But, of course, there are some trade-offs.
I wouldn’t trade the ability to work in my hoodie for anything. But, the added responsibility of owning a business is not for the faint of heart. The implications of missed tax deadlines fall directly on you. The consequences of missing deadlines come right out of your pocket!
Here’s what you need to know about Quarterly Estimated Tax Payments and why you need to make them on time…
What is estimated tax?
- The method to pay tax on income that is not subject to withholding, paid quarterly. Ex,. income earned from being a business owner
- Since you aren’t an employee who has the convenient luxury of having taxes withheld from each paycheck, it’s your responsibility to make an estimated tax payment to cover your net earnings each quarter.
Who needs to pay estimated tax?
- YOU! If you are a sole proprietor, independent contractor, partner, S corporation shareholder, or a self-employed individual
- You must pay estimated tax if…
- (1) You expect to owe at least $1,000 in taxes for the year
- (2) You expect your withholding and refundable credits to be less than…
- 90% of the tax to be shown on your current year tax return
- OR 100% of the tax shown on your previous year’s tax return
What happens if I don’t make Quarterly Estimated Payments?
Making Quarterly Estimated Payments correctly will save you money and a headache! If you do not pay enough tax throughout the year, you will have to pay a penalty. No matter how big or small the penalty is, no one wants to pay extra if it can be prevented. The penalty still applies EVEN IF you are due a refund when you file your tax returns. That means money out of your pocket that could easily be avoided!
When Are 2022 Quarterly Tax Payments Due?
Estimated tax payments for the current year are due as follows:
- First quarter: April 18, 2022
- Second Quarter: June 15, 2022
- Third Quarter: September 15, 2022
- Fourth Quarter: January 15, 2023
Now that you have the basics of the who, what, when, and why… let’s get you calculating! Check out my FREE 1-Minute Quarterly Tax Payment Calculator to get started on making those payments on time + stress-free! This is a tool you can pull out and use each quarter to take the guesswork and time out of figuring out how much taxes to pay each quarter.
Your process of calculating your quarterly taxes will never be easier.