Understanding Quarterly Taxes

by | Jul 12, 2022 | Business Finance | 0 comments

If you’re a small business owner, it is imperative that you understand precisely what quarterly taxes are. Estimated quarterly tax payments represent the money that you pay the government every quarter. You will remit these payments throughout a given year in anticipation of your federal tax debt. So, if you will owe at least $1000 in federal income taxes, then you are responsible for paying your quarterly taxes. A business owner, someone who is self-employed, and also landlords are generally responsible for remitting quarterly tax payments to the IRS.

There are set dates for paying these taxes throughout the year. Generally, these dates will fall on the 15th of April, June, September, and January. Sometimes these dates may have to be adjusted for weekends and/or holidays. You can of course make more payments than just these four payments throughout the year. In fact, some business owners will choose instead to make smaller payments each month. This tends to work better for some given their overall budget versus paying larger quarterly payments.

Calculating Your Quarterly Taxes

It really isn’t difficult to figure out how much you will need to pay for your quarterly taxes. Basically, you have to estimate the amount that you are going to owe as far as your yearly tax liability, divide that number by four, and send that amount in for each stipulated due date. Many people will simply take their tax liability from the previous year and use that as the amount to base their quarterly tax payments on.

You may be wondering what happens if you either overestimate or underestimate your earnings and thus your total tax liability. You do have the ability to complete a form where you have the option to refigure your estimated tax. If you do find that you have overpaid on estimated taxes throughout the year, you will likely receive a refund come tax time. If you consequently underpay your estimated taxes, a penalty or fee could be associated. So it is vital to carefully calculate the amount you believe you will owe in a given tax year.

What if I Don’t Pay Quarterly Taxes?

For many small business owners, times can be tough. Especially now, especially given the financial climate we find ourselves in. And so, unfortunately, they fail to make their quarterly tax payments. The question that remains is what happens in this instance? What happens if you don’t pay your quarterly taxes?

Usually, the IRS will assess a penalty for not paying your quarterly estimated taxes. So even if you are due a refund, a subsequent penalty or late fee could substantially impact that refund.

There are instances in which some of these penalties might be alleviated. For example, if there were unusual circumstances or you were involved in a disaster of some form, the IRS might give you a break. If you’re disabled and underpayment happened for a reasonable cause, you can file for relief from penalties. Speaking to a knowledgeable tax professional regarding practical reasons for not paying quarterly taxes is essential. Otherwise, you will likely face penalties and fines from the IRS.

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