What are Estimated Taxes?
As a taxpayer, you may come across the term ‘estimated taxes’ and get confused about what it means. Estimated taxes are the payments made to the IRS on income that is not subject to withholding tax. If you are self-employed, a freelancer, or a contractor, you may need to pay estimated taxes. In this blog post, we’ll discuss what estimated taxes are, who needs to pay them, when and how to pay them, and how to estimate your taxes accurately.
Who Needs to Pay Estimated Taxes?
If you are self-employed or have a side hustle, you may need to pay estimated taxes. Generally, if you will owe $1,000 or more in taxes for the year, you must pay estimated taxes. This applies to individuals, sole proprietors, partners, S corporation shareholders, and those who receive income from rents, dividends, interest, and capital gains. You must pay estimated taxes if you expect your withholding and refundable credits to be less than the smaller of:
- 90% of the tax owed for the current year
- 100% of the tax you owed the previous year
When to Pay Estimated Taxes
Estimated taxes are due quarterly, and the due dates are April 15, June 15, September 15, and January 15 of the following year. If the due date falls on a weekend or holiday, the due date is the next business day. To avoid penalties and interest, you should pay in full your estimated taxes by each due date. If you underpay your estimated taxes, you may be subject to penalties and interest.
How to Pay Estimated Taxes
You can pay estimated taxes online, by mail, or by phone. The easiest and fastest way to pay is online through the IRS Direct Pay or Electronic Federal Tax Payment System (EFTPS). You can also pay by mail by sending a check or using Form 1040-ES. If you prefer to pay by phone, you can call the IRS at 1-800-829-1040. When you make your payment, you’ll need to specify the type of tax payment, the tax year, and the quarter of the payment.
How to Estimate Your Taxes Accurately
To estimate your taxes accurately, you’ll need to keep track of your income, expenses, and taxes owed throughout the year. You can use IRS Form 1040-ES to estimate your taxes, and it has a worksheet that can help you calculate your estimated taxes. You should also consider any credits, deductions, and other tax benefits that you are entitled to. You may want to consult a tax professional or use tax software to ensure that your estimates are accurate and that you are not underpaying or overpaying.
Need Help Taking Care of Your Estimated Taxes?
If you’re self-employed, have a side hustle, or get income that is not subject to withholding tax, you may need to pay estimated taxes. Knowing what estimated taxes are, who needs to pay them, when and how to pay them, and how to estimate your taxes accurately can help you avoid penalties, interest, and surprises at tax time. Make sure that you keep track of your income, expenses, and taxes owed throughout the year and pay your estimated taxes on time and in full. Give us a call at King of Kings, Firm for expert business services including Estimated Taxes. We’ll help you save more and spend more time on your business!
frequently asked questions
There are several tax benefits that small businesses can take advantage of. One of the most significant is the deduction for qualified business income (QBI). This allows eligible businesses to deduct up to 20% of their qualified business income from their taxable income. Additionally, eligible small businesses can also benefit from the Tax Cuts and Jobs Act (TCJA) which increased the Section 179 expensing limit to $1 million and allowed for 100% bonus depreciation.
If you overpay your estimated taxes, the IRS will refund the amount to you after the end of the tax year. Refunds can be issued either as a check or direct deposit into your bank account.
If you underpay your estimated taxes, however, you may incur penalties and interest on the unpaid amount. To avoid these additional fees, you will need to maintain accurate records of the estimated tax payments that you have made. You should document each payment and keep a record of the date on which it was paid, as well as its amount.
If you overpay your estimated taxes, the IRS will refund the amount to you after the end of the tax year. Refunds can be issued either as a check or direct deposit into your bank account.
If you underpay your estimated taxes, however, you may incur penalties and interest on the unpaid amount.
