Quarterly Estimated Taxes – The Who, What, Why, When, and How!

Quarterly TaxesJust about everyone knows that taxes must be filed at least on an annual basis. However, what most small business owners, particularly sole proprietors, don’t realize is that taxes may be dues at other times during the year! Here is a quick and dirty attempt to cover the basics regarding quarterly estimated taxes. Note that the discussion below is based on federal taxes; however, each state has it own additional rules reqarding estimated tax payments.

Who – Who is Required to Pay Quarterly Estimated Taxes?

Generally, if you are a sole proprietor, partner, S-Corp shareholder and/or self-employed person and you expect to owe tax of $1,000 or more when you file your return you must file estimated taxes.

What & Why – What are Quarterly Estimated Taxes and Why Do They Need to be Paid?

Estimated tax is the method used to remit tax due on income that is not being withheld by someone else. This includes, but is not limited to, income from self-employment, interest, dividend, and gains from the sale of assets.

The United States tax system is a “pay-as-you-go” system. Therefore, Uncle Sam wants his money equally throughout the year; not just at year end when you file your return. Paying in estimated taxes is similar to having taxes withheld from a paycheck if you are an employee. Employers are required to remit the tax they withhold from your paycheck throughout the year.

When – When are Quarterly Estimated Taxes Due?

Estimated taxes are paid in on a quasi-quarterly basis. For 2011, the due dates are April 18th, June 15th, September 15th, and January 17, 2012. If you don’t pay enough by the due dates you may be subject to a penalty even if you are due a refund when you file your annual return.

How – How to Calculate Quarterly Estimated Tax Payments

To figure out your estimated tax you must rely on assumptions regarding your expected income and deductions/credit you are eligible for during the tax year. Once you calculate your estimated tax amount, then you must remit the payment electronically. There are different methods that can be used to determine your quarterly payment.

Summary

Quarterly payments are one of the many important responsibilities often overlooked by business owners. It is highly recommended that you review the requirements in further detail to determine if you are in compliance.

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to assist you with your questions pertaining to this tax topic and others.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.

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