If you are self-employed or a contract worker and you are generating a profit, you may need to pay estimated quarterly taxes. This is the Internal Revenue Service’s (IRS) way of collecting taxes from people who don’t have them withheld from their paychecks through payroll.
Our guide on estimated quarterly taxes will help you understand who needs to pay them, how to calculate them, and how to pay your quarterly taxes.
If you have questions about estimated quarterly taxes or need help calculating how much you should pay, our team would love to help! Our clients can easily schedule a time to meet with us to discuss your unique situation.
Who Needs to Pay Estimated Quarterly Taxes
Most people pay their taxes throughout the year by having them withheld from their paychecks. When you are self-employed, however, you pay estimated quarterly taxes to cover those taxes.
Self-employed individuals, including contract workers, sole proprietors, LLC owners, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe $1,000 or more in taxes when their return is filed.
This means if your new business is not yet making a profit, you do not need to make estimated quarterly tax payments.
There are cases when you may have to pay estimated quarterly taxes even if you are employed and your employer is taking your taxes our for you. If you receive income from the following categories you may have to pay estimated quarterly taxes.
- Capital Gains
- Prizes or awards
Calculating Estimated Taxes
Quarterly estimated tax payments are based on estimations of what a business owner believes they will make in a quarter. Taxpayers estimate their income and their deductions in order to calculate the estimated quarterly taxes.
The IRS suggests using your previous year’s income and deductions to help calculate this year’s estimated taxes. They also provide an IRS’ Estimated Tax Worksheet on form 1040-ES to help you calculate your taxes.
The important thing to remember with quarterly estimated taxes is that they are estimates. If you over or under-estimate your taxes, you can file another form with the IRS to fix those taxes. If you make more or less income than you anticipated, you can also refigure your estimates for the next quarter so that you aren’t always over or under-estimating your taxes. Make sure you’re doing your best to make accurate estimates so you can avoid potential penalties.
Estimated Quarterly Tax Deadlines
For 2022, the Estimated Quarterly Tax due dates are:
- 1st Quarter – April 18, 2022
- 2nd Quarter – June 15, 2022
- 3rd quarter – September 15, 2022
- 4th Quarter – January 17, 2023
Be sure to save these dates in your calendar and set reminders so you don’t miss the deadlines.
How to Submit Your Taxes
You can submit your taxes online through the IRS’ secure server. You’ll have multiple options to make your payments, including credit or debit card, cash, PayPal, money wire, and more. You can also access options to schedule future payments through the Electronic Federal Tax Payment System (EFTPS).
Estimated Quarterly Tax Penalties
If you do not make estimated quarterly tax payments or do not pay enough tax throughout the year, you may have to pay a penalty. Generally, if you owe less than $1,000 in tax or if you paid at least 90% of the tax for the current year, you can avoid any penalties. Again, quarterly estimated taxes are just that: estimates. Do your best and make adjustments as you go to avoid additional costs.
How Mazuma Can Help
If you have questions about estimated quarterly taxes or need help calculating how much you should pay, our team at Mazuma would love to help! Our clients can easily schedule a time to meet with an accountant and tax professional to discuss your unique situation. Simply reach out to our team through the Mazuma Dash. We look forward to hearing from you!