Don’t Miss Those 2018 Quarterly Estimated Tax Deadlines
If you’re a sole proprietor, you now have quarterly estimated taxes to reckon with. These can be a bit complicated. Luckily, we have Jennifer Dunn, Chief of Content at TaxJar, to walk you through it. (Remember, this post is for educational purposes only. For tax advice related to your specific business, be sure to consult a reputable accountant).
Isn’t owning your own business a lot of fun? Calling all the shots, being your own boss — there just isn’t anything like it in the corporate world. Once you go independent and become the master of your own fate, it’s tough to go back.
It’s not all fun and games, though — especially when it comes to taxes. If you’re in business for yourself, you now have to pay taxes quarterly. Quarterly estimated taxes (QETs) can be a major thorn in your side if you’re not careful. So if you’re new to this and need some help, here are some tips to get you on the right path.
Start keeping better records.
The first step is to create a system to keep track of your records. You need to keep every single payment stub, receipt, and all other proof of money going in and out of your small business. Whether it’s coffee with a client or your fifth trip to the craft store this week, absolutely everything is vital to filing.
If you’ve had trouble with this in the past, figure out a system that works for you. Manila folders can be a bit of a pain, so to streamline things, try tracking your receipts with an online tool. Also explore accounting software options so you can easily pull up results and never miss a thing. You can hook up TaxJar to your Square account, which will help keep you organized.
Get your schedule down.
Next you need to know when you’re going to be filing. One missed filing and payment can start a chain reaction of getting behind, so make sure you have the dates down pat. Here they are:
Q1 – April 17, 2018
Q2 – June 15, 2018
Q3 – September 15, 2018
Q4 – January 15, 2019
You still have time (as of this posting, anyway) to get ready for June. The deadlines are the same every year (if they fall on a weekend, the deadline moves up to the next weekday), so make sure to keep up to date. Put them on your calendar and set reminders.
Know how to pull them off.
Now that you have the necessary paperwork and your schedule down, it’s time to know how QETs actually work. Basically, these taxes replace the kind of taxes you would regularly have taken out of your paycheck if you worked a 9 to 5. Rather than your boss or the company remitting those taxes to the IRS and your state’s taxing authority for you, it’s now entirely up to you.
All that paperwork you’ve been saving comes in handy now. It’s time to add everything up over the past year (or as much as you have since you started). For this part, you just want to count money you brought into your business. Whatever you made over the past year, divide it by four and use the IRS tax table to figure out what you owe on taxes for that amount.
After that’s done, voilà — you’ve just figured out your first payment. Now you must pay at least this amount on all those dates listed above. But be sure to keep up with your income throughout the year just to make sure you’re not underpaying. Why? Because if you underpay, the IRS might hit you with a penalty, usually around the time you’re doing your yearly taxes in April. If you can keep up with everything, though, you’ll be fine. It’s mainly used to prevent people from skipping the QETs.
This is also why you want to keep up with your receipts and other expenses. It all comes in handy when you try to square away your yearly taxes. If you did underpay, using as many deductions as you possibly can will hopefully keep you from experiencing an empty wallet.
When filing and paying, one great option is to use EFTPS. It’s provided free by the Department of the Treasury and can get you paid and squared away in no time flat. This way you can get right back to running your business without any fuss.
Know about safe harbor.
Some years are great for business, others aren’t. It just happens and the IRS knows it. This is why you should know all about the Safe Harbor Rule.
Here’s how this works. As long as you pay the same amount in quarterly estimated taxes as you paid the previous year, you won’t get hit with crazy fees or anything from the IRS. For example, let’s say you paid $750 in taxes last year. This year, though, your profits increase (congrats) and you find that you actually owe $3000 in taxes.
Rather than get hit with that out of the blue, you simply need to pay the same $750 as last year to fit into the Safe Harbor Rule. This means the fees and penalties you normally would get hit with by underpaying won’t apply to you. Of course, the next year you’ll have to pay at least $3000, but that’s a problem for the future. Plus, if you’re that successful, that’s a good problem to have.
Use it for practice.
Understandably, QETs are a huge drag for small business owners. After all, they make taxes vastly more complicated compared to your average taxpayer, especially considering that you need to file both business and personal taxes.
Don’t see QETs as a burden, then; view them as a type of practice. It’s hard to get intimidated by taxes when you’re doing them all year long. Use the experience to get your system and organization under control. So when “the big dance” comes around in April, you’ll be way ahead of the game compared to your peers.
—Jennifer Dunn (TaxJar)
TaxJar is a service that makes sales tax reporting and filing simple for more than 10,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!
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