Estimated Taxes: How to Determine What to Pay and When

Instead, you’re solely responsible for tax withholding yourself and paying taxes throughout the year. If you have zero tax liability for the previous year and were a U.S. citizen or resident alien all year, you don’t have to make estimated payments for this year. However, if you have significant income for this year, you may choose to make quarterly payments anyway, so you’re not faced with a massive bill at tax time.

What Are the Due Dates for Quarterly Estimated Tax Payments?

You can use your tax filing from the previous year as a guide. Look for the line on Form 1040-ES — the Estimated Tax for Individuals form — on the previous year’s tax return that lists the total tax that you paid for the year. If you take that number and divide it by four, that can give you an idea of how much you’ll have to pay in taxes each quarter. If you fall into any of these categories, keeping up with your estimated tax payments is essential to avoid penalties and interest. As a small business owner or self-employed individual, you are responsible for paying quarterly taxes 4 times per year.

• This means you would pay the same amount as your tax obligation last year, throughout the current tax year.
• Quarterly taxes, also known as estimated taxes, are tax payments made by individuals and businesses to the IRS for federal withholding every quarter.
• You’ll pay more than required if you don’t consider tax deductions.
• It’s as simple as applying all or a portion of your overpayment to the first quarter of your next year’s tax liability instead of receiving it as a refund.
• You can avoid an IRS underpayment penalty by paying 100% of your business’s tax liability from the previous year as estimated payments for the current year.

How to Calculate Quarterly Tax Payments

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When should you make quarterly tax payments?

This is typically true whether you operate as a freelancer, sole proprietor, or other small business type. If you’re confident in the accuracy of your quarterly estimated tax calculations, most businesses can submit payments to the IRS all at once instead of in installments. Use IRS Form 1040-ES to submit all of your quarterly estimated tax payments for the tax year.

• Learn how to build, read, and use financial statements for your business so you can make more informed decisions.
• Thresholds are based on the previous year’s income tax return and your current year’s estimated income and expenses.
• The amount varies depending on your income level and whether or not it’s subject to Social Security taxes.
• Submit your quarterly taxes using official IRS payment methods.4.

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Once you have that number, multiply it by 100 to get your effective tax rate percentage. These are expenses you can subtract from your taxable income. Common bookkeeping and payroll services ones include mortgage interest, medical expenses, and charitable donations. Another option is to calculate your obligation using the tax return from the prior year.