Each year, tax season brings on frustration over how to fill out taxes, but what if you have to make estimated tax payments on your income? Estimated tax payments are made quarterly throughout the year when you’re running a certain kind of business. Instead of having a panic attack each April, some business owners are having to pay the IRS 4 times in one year.
Those who are working for themselves will have to pay estimated taxes. This includes all workers who will receive a 1099 as well as those who are receiving cash payments through clients or customers. Self-employed workers include those who are driving for Uber or Lyft, freelance writers, taskers on TaskRabbit or transcriptionists working online. If you received money for work the previous year, it’s possible that you’ll need to file estimated payments on that income.
Sole Proprietor Owners
Sole business owners are ones who have a business entity that has been incorporated. The previous example were people who have a business on the side, or make a living as a freelancer or contractor. A sole proprietor owner has a small business without employees. If that business is expected to pay over $1,000 in taxes for the year, the business owner should be making estimated payments.
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People Who Owed Taxes Last Year
If you were required to pay taxes last year, that means there wasn’t enough withheld from your paychecks. That means you’ll need to make estimated payments on top of what is taken out of your check. If you’re a business owner or contractor that has to be pay last year, that means you weren’t making the right amount of payments throughout the year, and you’ll have to make adjustments to the total paid quarterly.
A corporation that is expected to have a tax liability of over $500 will need to make estimated payments throughout the year. Along with corporations, partners and S corporation shareholders will have to make estimated quarterly payments too. Every 3 months, the corporation will have to calculate the prior months to make estimated payments. This will include all income, deductions and credits that are calculated to estimate the taxes to be paid.
Who Doesn’t Need to Pay?
If you were a U.S. citizen or resident alien for the entire previous year and had no tax liability for that year, you don’t have to pay estimated taxes. The previous tax year would cover the entire 12-month period. You have to meet all three of the conditions to avoid paying estimated taxes for the current year.
There’s a deadline for paying estimated taxes each quarter. If you know you should be paying taxes, you will need to understand the payment and due dates, which are April 18, June 15, September 15 and January 16 of the following year. Each payment due date covers the 3 prior months. When it comes to making estimated tax payments, it’s important to understand whether you’re required or not.