Guess what? Your quarterly estimated taxes are due soon, on June 16th. If you forgot, then you’re like many other small business owners. If you’re not used to paying them or keep an accurate calendar, you just might find these taxes cropping up out of nowhere!
Is this the boat you’re in? Then you’ll likely need a refresher for what quarterly estimated taxes (QETs) are and how to pay them. To help you out, here are the basics of QETs and what they’re all about. This will hopefully help you comply with your Quarter Two payment in June and any payments you have in the future.
What are QETs?
Quarterly estimated taxes, or QETs, are basically the way the government asks independent sellers, freelancers, and other business owners to pay their taxes. When you work a regular or part-time job, the company withholds taxes from your paycheck and pays them to government for you. When you work for yourself, nobody does this for you. You have to send in payments all by your lonesome, on a quarterly deadline. These are your QET’s.
So every few months you’re forced to sit down and figure out how much money you owe to the government. This is based on how much money you made through your business, either through sales, or clients, or passive income, or however else you brought in funds.
While it may be annoying, at least they don’t require you to send in taxes every time you sell an item or receive a check from a client! This way you just have to worry about remitting income tax to the government every few months, and once you get in a pattern you can keep it going.
How it Works
So how exactly are you supposed to figure out how much you owe? While it sounds a little complicated at first, it’s pretty simple as long as you have your finances in order. One of the best things you can do to start out is to sign up for an account at GoDaddy Online Bookkeeping. This will help you automatically get all your small business finances in order so you don’t spend hours going over spreadsheets, invoices and bank statements.
Whatever you use, though, you have to figure out how much profit you’ve made. (Reminder: Profit is your income minus your business expenses.)
The way most QET estimations are done is by adding up your sales over the past year and figuring out how much tax you owe for those sales. To get your first QET payment, simply divide this number by four. Now just send in the payment to comply.
Of course, these are called “quarterly estimated taxes” for a reason. You may have a very strong fourth quarter, or you may find that sales taper off mid-year. Either way, when your fiscal year is over (usually on December 31st) you’ll be able to add up all of your income, subtract your expenses and calculate your accurate payment. As long as your quarterly estimated taxes were in the ballpark of the amount you owe, you won’t face any fees or penalties.
Another note on fees an penalties, the IRS’s “Safe Harbor Rule” says that as long as you pay the same amount in taxes this year as you did last year, then you won’t be charged any extra fees or penalties. For example, if you paid the IRS $1,000 last year, but business really took off this year and now you owe $2,000, you’ll be fine as long as you pay that $1,000 in quarterly estimated taxes (i.e. in 4 payments of $250 each, throughout the year.) Of course, you will still owe that additional $1,000 to the IRS at the end of the year, so you will likely want to go ahead and use an service like GoDaddy Online Bookkeeping to calculate your current year’s quarterly estimated tax payments.
2014 Quarterly Estimated Tax Due Dates
Q1 – April 15, 2014 (you should have already paid this one on income made from January 1 -March 31, 2014!)
Q2 – June 16, 2014 (pay on income made between April 1, 2014 and May 30, 2014; this due date falls on the 16th because the 15th is on a Sunday)
Q3 – September 15, 2014 (pay on income made between June 1 and August 31, 2014)
Q4 – January 15, 2015 (pay on income made between September 1, 2014 and December 31, 2014)
This post is brought to you by GoDaddy Online Bookkeeping, the simplest way to manage your small business finances online. Sign up today for a less taxing tax time!