As a freelancer, self-employed individual, or small business owner, you may know the term “quarterly taxes.” However, if you’re just starting or have never had to pay them, quarterly taxes can be confusing. In this article, we’ll break down what quarterly taxes are, who needs to pay them, when they’re due, and how to calculate and pay them.
What Are Quarterly Taxes?
Quarterly taxes are estimated tax payments that self-employed individuals, freelancers, and small business owners must make to the Internal Revenue Service (IRS) four times a year. These payments cover income taxes, self-employment taxes, and any other taxes owed for the current tax year.
Unlike traditional employees who withhold taxes from each paycheck, self-employed individuals and small business owners are responsible for calculating and paying their taxes. Quarterly taxes are a way for the IRS to ensure that self-employed individuals and small business owners pay their taxes throughout the year rather than waiting until the end of the year to pay them in one lump sum.
Who Needs to Pay Quarterly Taxes?
If you’re self-employed and expect to owe $1 thousand or more in taxes for the year, you must make quarterly tax payments. This includes sole proprietors, partners in a partnership, members of a limited liability company (LLC), and S corporation shareholders who own more than two percent of the company.
It’s important to note that even if you have another job where taxes are withheld from your paycheck, you may still need to make quarterly tax payments if you have additional income from self-employment or a small business.
When Are Quarterly Taxes Due?
Quarterly tax payments are due four times a year and usually on the following dates:
- April 15th (for income earned from January 1st to March 31st)
- June 15th (for income earned from April 1st to May 31st)
- September 15th (for income earned from June 1st to August 31st)
- January 15th of the following year (for income earned from September 1st to December 31st)
It’s important to note that if the due date falls on a weekend or holiday, it will be the following business day.
How to Calculate and Pay Quarterly Taxes
Calculating and paying quarterly taxes may seem daunting, but it’s fairly straightforward. Here’s how to do it:
1. Estimate Your Income and Expenses
The first step in calculating your quarterly taxes is to estimate your income and expenses for the year. This will give you an idea of how much you can expect to owe in taxes.
2. Calculate Your Taxable Income
Once you have estimated your income and expenses, you must calculate your taxable income. You’ll be taxed on this income after deducting any allowable expenses.
3. Calculate Your Estimated Taxes
Next, you’ll need to calculate your estimated taxes. This includes income tax and self-employment tax, which is 15.3 percent of your net self-employment income. Depending on where you live and work, you may also need to pay state and local taxes.
4. Fill Out Form 1040-ES
To pay your quarterly taxes, you must fill out Form 1040-ES, the Estimated Tax for Individuals form. This form will help you calculate your estimated taxes and provide you with payment vouchers to send with your payment.
5. Submit Your Payment
Finally, you’ll need to submit your payment to the IRS. You can do this online using the Electronic Federal Tax Payment System (EFTPS) or by mailing a check or money order with your payment voucher.
It’s important to note that if you underpay your quarterly taxes, you may be subject to penalties and interest. To avoid this, accurately estimate your income and expenses and pay your taxes on time.
Quarterly taxes can be a confusing concept, but they’re essential to being self-employed or a small business owner. By understanding what quarterly taxes are, who needs to pay them, when they’re due, and how to calculate and pay them, you can stay on top of your tax obligations and avoid penalties and interest. If you’re ever unsure how much to pay or when to pay, it’s always a good idea to consult a tax professional who can help guide you through the process.
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