As a small business owner, you may have heard about estimated quarterly tax payments. However, you may not know why some people make the payments – and some people don’t.
Regardless, the benefits of making estimated quarterly tax payments are often overlooked. We’ve even met some people who think of them as a loan to the government!
At CSI Accounting & Payroll, we’ve worked with small business taxes for over 50 years. Many small business owners have wanted to know the following about estimated quarterly tax payments:
- Who needs to make estimated quarterly tax payments?
- What are the benefits of making these payments?
- How do you make these payments? How do you calculate what you owe?
- When are payments due? What happens if you miss one?
Who Needs to Make Estimated Quarterly Tax Payments
No matter how much they owe in taxes, C-Corporations and the owners of Sole Proprietorships, Partnerships, and S-Corporations can opt into making payments.
However, C-Corporations are required to make payments if their estimated annual tax liability is more than $500.
Similarly, the owners of Sole Proprietorships, Partnerships, and S-Corporations are required to make payments if their estimated annual tax liability is more than $1,000.
The Benefits of Making Estimated Quarterly Tax Payments
Despite what you may have heard, making estimated quarterly payments will not lower your tax liability. The main benefit is to avoid penalties.
Remember, you’re required to make payments if you’re a C-Corp with an estimated annual tax liability of more than $500 or a Sole Proprietor, Partnership, or S-Corp with more than $1,000.
If this applies to you but you don’t make the payments, there are penalties of five percent per month. Luckily, this is capped at five months, or 25 percent.
How to Calculate & Make Estimated Quarterly Tax Payments
Now, let’s talk about how these payments are made.
Where to Pay
C-Corporations file with Form 1120-W and pay using EFTPS (Electronic Federal Tax Payment System) or with a five percent penalty for paying by check.
On the other hand, Sole Proprietorships, Partnerships, and S-Corporations handle these payments through the owners’ personal tax returns. These individuals are encouraged to pay on the IRS website, but they can also pay by check with no penalty for doing so.
How Much to Pay
This is also different for C-Corps than it is for Sole Proprietorships, Partnerships, and S-Corps, and there is no reliable payment calculator. The best thing you can do to avoid penalties is follow this rule of thumb for safe harbor.
C-Corps should find their prior year’s tax liability and pay 100 percent of it (match it), and Sole Proprietorships, Partnerships, and S-Corps should pay 110 percent of their prior year’s tax liability.
If you’re still not feeling confident, a year-round accounting service like monthly accounting can help advise you!
When to Make Estimated Quarterly Tax Payments
When do you pay? For all types of estimated quarterly tax payments, the due dates are approximately… quarterly. Who could’ve guessed?
Payment Due Dates
Generally, due dates for a year will fall on April 15, June 15, September 15, and then January 15 of the following year.
However, there are exceptions if any of these dates happen to be a weekend or a holiday. If that’s the case, then the payment is due the following business day.
Missed or Late Payments
What happens if you miss a due date? Can you make a late payment?
Now, just because you started making payments one year doesn’t mean you have to keep making them the following year. It all depends on what your tax liability is, and your tax professional should communicate whether you should be making payments or not.
However, if you need to be making payments in a certain year but you miss a payment, there will be a penalty. It’s the same penalty that we mentioned earlier: five percent per month until the payment is made, capped at 25 percent.
Still not sure what the dates are this year? Worried about missing a payment? If you’re still looking to handle it in-house, get some peace of mind with our free Small Business Accounting Kit.
Avoid Penalties With an Accountant!
Now that you know who needs to make estimated quarterly tax payments, the benefits of making them, and how and when to pay, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what it’s like to work with CSI by clicking the image below:
