Many individuals are familiar with filling out W-4 forms provided by their employers to file taxes. Business owners, self employed individuals and contractors however don’t fill out traditional W-4 forms. They are professionals who might receive income without taxes taken out right away and are therefore expected to make payments quarterly. According to the IRS, you are expected to make quarterly estimated tax payments if the following apply.
- You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.
- You expect your withholding and refundable credits to be less than the smaller of:
- 90% of the tax to be shown on your current year’s tax return, or
- 100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
Simply put, if you know you are going to owe a good amount of money, it’s beneficial to pay your estimated taxes. Here are a few reasons why.
Penalties
No one likes penalties and paying your taxes each quarter prevents that. Per the IRS if you owe over $1,000 you could be penalized for underpayment of your taxes. Knowing the exact figure could be challenging and hiring an accountant could help in estimating how much your payments should be. Your accountant should have all the right numbers and processes in place to give a figure to pay that should prevent you from underpaying your taxes.
Tax Bill
Paying your taxes quarterly let’s you avoid the potential surprise of a larger tax bill during tax season. Not paying could lead to having a large and unexpected bill at tax season. Paying your taxes quarterly can give you peace of mind knowing you aren’t likely to get an unexpected bill. This might be a task to deal with every quarter due to the nature of your business and how busy you are. If that’s the case, consider hiring an accountant who can assist you. For all you know, the cost of paying penalties could be more than what an accountant might charge to help you.
Efficiency
Paying your estimated taxes each quarter should give a good overview of your books and less stress in managing your accounting. This is where a bookkeeper comes in handy as they can provide insights on your accounting through the year. Tax season is less of a headache when you’ve been managing your books and making quarterly payments throughout the year.
In conclusion, the benefits to paying your estimated quarterly taxes can make life easier and provide you peace of mind. Quarterly taxes are typically due on April 15, June 15, September 15, and January 15, for the current calendar year. Most accountants and bookkeepers are aware of these dates and should work with you to get your payments in on time as needed.
Want to know more about how accountants and bookkeepers can help with your taxes and grow your business? Contact one of our professionals here at Motl Accounting. We assist businesses and individuals with their accounting needs and look forward to assisting you.