3 Tips for Paying Quarterly Estimated Taxes

For most Americans, April 15 is the big tax deadline each year. But for those who don’t have an employer withholding money from their paychecks — namely, small-business owners — payments are actually due four times a year.

These quarterly estimated taxes are due in April, June, September, and January (the following year). Quarterly taxes are typically due on the 15th of the month, but when the 15th falls on a Saturday or Sunday, the deadline is pushed to the next business day.

Here are three lesser-known facts about quarterly estimated taxes, courtesy of Julian Block, a Larchmont, N.Y.-based tax attorney and author of Tax Tips for Small Businesses.

  1. Even part-time business owners may owe quarterly taxes. If you run your business on the side and hold down a full-time job with taxes withheld from your paycheck, don’t assume you’re off the hook for quarterly taxes. Block points out that in some cases, “you can increase your withholding to cover the taxes that are due on your salary and also to cover the taxes that are due on your self-employment income. If that’s not your situation, then you need to make estimated payments.”
  2. Quarterly payments can be based on your previous year’s tax liability. Avoid sending in too much money and waiting for a return by following the IRS’s safe harbor rule. If your adjusted gross income for the previous year was under $150,000, you can generally avoid penalties by making quarterly payments that are at least equal to what you owed the previous year. “Even if you fail to calculate how high your income is going to be, if you pay in a certain amount, you are assured you won’t be subject to any penalties,” he says. However, if your adjusted gross income for the previous year was $150,000 or more, you’d need to make payments of at least 110 percent of the previous year’s tax liability to avoid penalties.
  3. Alimony payments factor into your quarterly taxes. If you own a business and also receive alimony payments, your quarterly estimated taxes should factor in both sources of income. “In a situation where a [divorced] woman who has her own business has to make estimated payments on her self-employment income,” says Block. “For purposes of estimated tax payments, she needs to take into account not just income from self-employment, but also income from alimony.”

Want to know more about quarterly estimated taxes? Check out the IRS website or consult an accountant.

About Susan Johnston

Susan Johnston is a freelance writer and blogger who specializes in writing about business and personal finance. Her articles have appeared in or on The Boston Globe, Dance Retailer News, GetCurrency.com, Mint.com, PARADE Magazine, WomenEntrepreneur.com, and other places.
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2 comments
RAAckermanATCerebrations
RAAckermanATCerebrations

Actually, this does not apply to "small businesses" per se, but to unincorporated entities, partnerships, and those that do not make payroll for themselves.

More importantly, the biggest problem these folks have is NOT income tax payments- it is the payroll taxes due on net income.  So, if you run a business on the side, generate 20K in revenue, with 2 K in expenses, you may not owe one red cent in income taxes- but you owe (at least for 2012, where there is still payroll tax holiday of sorts)  at least $ 2500 in payroll taxes.  And, that has NOTHING to do with whatever income taxes you owe....

Snowy
Snowy

Divorced men may also receive alimony! Thank you for the helpful tips.

Trackbacks

  1. [...] withholdings. However, it will subjected to taxes down the line, and thus you may need to make estimated quarterly payments on this additional income to prevent a huge bill when you file your income-tax return.Sheryl [...]

  2. [...] There is no formal process or paperwork for becoming a sole proprietor. It often happens organically in the development phase of a new venture. In the eyes of the IRS, the sole proprietor and the business are really one and the same: The business isn’t taxed separately, and income from it is reported on the business owner’s personal Form 1040. The IRS also expects sole proprietors to withhold appropriate income taxes and pay quarterly estimated taxes. [...]