If you caught Ben on Periscope this morning, he provided a quick overview on the basics of quarterly taxes for your small business. As a small business owner, you’re no stranger to Uncle Sam wanting his cut of everything you’ve make. While you may not need to worry about quarterly taxes during the first few years you’re in business, you’ll eventually get to a point where you need to start paying them…yes, four times each year.
Small business owners operate under a pay-as-you-earn system for federal taxes, rather than a W2 employee who has taxes taken out of their check before it hits their account. The IRS expects small business owners to be responsible tax payers, and softens the blow of a huge end of year tax bill by splitting it up into four installments. These are called quarterly taxes, and you’ll need to pay them if you anticipate your end of year tax bill to be more than $1,000. Use IRS Form 1040-ES to see if you’re tax bill might end up being more than that.
So what if you don’t pay quarterly taxes and you were supposed to? Well, unfortunately the IRS doesn’t forget it and you won’t fly under the radar for long. You’ll just pay your quarterly taxes all at once, when taxes are due in April. The penalty and interest for not paying your quarterlies is based on the difference between the amount you should have paid in for each installment and the amount you actually paid for as long as the underpayment remains outstanding.
Our CPA, Ben, suggests paying quarterly taxes for your small business if you plan to bring home more than $10,000 profit this year.
For 2016, quarterly taxes are due on April 18th, June 15th, September 15th, and then again on January 17, 2017.