There are very few things that are to your advantage to put off until later. It’s true that once in a while, you can procrastinate on a project long enough that the project is no longer necessary. But that’s usually the exception, not the rule.
Estimating your 2022 income so that you can make estimated tax payments falls into the category of “there’s no time like the present.” Planning for estimated tax payments gets you in the mindset of paying attention to your financial condition. It helps keep you on track. And it keeps you from paying penalties come tax time next year.
Estimated Tax Payments Aren’t for Everyone
You don’t have to worry about estimated tax payments if you’re an employee. Your employer withholds money from each paycheck and sends it to the IRS on your behalf. You then “reconcile” with the IRS at tax time.
However, if you’re a self-employed small business owner or contractor, it’s a different story. You’re responsible for paying taxes as you go. There’s no employer to do it for you. Most taxpayers in this situation make estimated tax payments each quarter. But that can be a challenge if you don’t know how much you’re going to make.
How to Estimate Your Income
The best way to estimate your income for tax purposes is to start with what you made last year. Then figure in any variables that might impact the business this year. Are you expecting to land a big project? Are you staffing up? What conditions might affect your industry this year? Most business people can get a good handle on these variables and others. Once you have an idea of how much income you’ll earn, you can use the IRS’s worksheet to help you figure out how much tax to pay.
A good thing to remember is that this process isn’t all or nothing. You can do it each quarter and adjust your tax payments as you go. Next year at tax time, you’ll true everything up with the IRS just like everyone else. If you’ve guessed correctly, you should end up owing little to nothing or possibly even receive a refund.
Not Good at Guessing Games?
If you’re new to all this, it might be wise to call an accountant for help. Adams Accounting Solutions can help with all aspects of tax preparation for small businesses and the self-employed. We’ll help you calculate your estimated income and quarterly tax payments so there are no surprises at tax time next year.
Give us a call to schedule an appointment. There’s no time like the present to start planning for the future!
