What You Need to Know about Quarterly Estimated Tax Payments

The notion of paying quarterly estimated tax payments is daunting for many small business owners. The self-employed are particularly nervous when each new quarter rolls around; do they need to make a quarterly payment or not? Estimated tax payments aren’t as scary as they may seem. Let’s take a closer look.

What Are Estimated Tax Payments?

The IRS likes to have tax dollars rolling in throughout the year as taxpayers earn income throughout the year. In many cases, this is done through regular tax withholdings from paychecks. The idea behind these tax withholdings is that each taxpayer will have just the right amount taken out so that at the end of the year, tax withholdings equal taxes due. Of course, this perfect match is difficult, which is why some people owe money at tax time while others get refunds.

For some taxpayers, there’s no tax withholding coming out through the payroll process. This is where estimated tax payments come into play. They allow these wage earners to make quarterly payments based on their estimated income throughout the year. This lessens the burden at tax time and keeps the IRS happy.

Do I Need to Make Estimated Tax Payments?

The IRS requires some individuals and entities to pay quarterly estimated tax payments. Self-employed individuals, including sole proprietors, partners, and S corporation shareholders typically have to make estimated tax payments if they expect to owe $1,000 or more at tax time. Corporations have to make estimated tax payments if they expect to owe more than $500 at tax time. In some cases, landlords and rental property owners may also be subject to estimated tax payments.

Is There Anyone Who Doesn’t Have to Make Estimated Tax Payments?

Those wage earners who work for a larger company that takes taxes out of their paychecks don’t have to make separate estimated payments; in essence, they’re already making tax payments through their withholdings. Also, taxpayers who meet all three of the criteria below do not have to make estimated payments.

• They were a U.S. citizen for the entire year.
• They didn’t owe any taxes for the previous year.
• Their prior tax year covered a full 12-month period.

What Happens If I Don’t Make Payments?

If you fall into one of the categories of people who should be making estimated tax payments during the year, you could be penalized for not doing so. You may also be penalized for underestimating the tax amount during the year, resulting in an underpayment of estimated taxes.

How and When Do I Make These Payments?

You can make your estimated tax payments by filing Form 1040-ES. Instructions on how to calculate and file your estimated quarterly tax payments can be found in IRS Publication 505, Tax Withholding and Estimated Tax. Estimated tax payments are due according to the schedule below:

• Q1 (January 1 – March 31): Due April 15
• Q2 (April 1 – June 30): Due June 15
• Q3 (July 1 – September 30): Due September 15
• Q4 (October 1 – December 31): Due January 15 of the following year

Call Adams Accounting Solutions for Assistance with Estimated Tax Payments

At Adams Accounting Solutions, we help take the confusion out of figuring out and filing estimated tax payments. We specialize in tax preparation for small businesses and the self-employed. Give us a call today at 913-888-9100 for help in estimating and submitting your estimated tax payments.