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How to file your small business quarterly taxes

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Did you know that if you are an independent contractor you must file quarterly taxes? Yes, these professionals, among others, are required to pay their taxes every three months. 

But what exactly are quarterly taxes? 

Who should file them?

What are the deadlines to pay them?

Below you will find answers to all these questions. Also, we will show you how you should calculate your quarterly taxes, and what the consequences could be if you don’t comply with this tax obligation.

What are quarterly taxes?

Whether you should file quarterly taxes or not depends on how your business is structured. The IRS requires independent contractors and sole proprietors to file taxes every three months. 

This does not happen with traditional employees, as their employers deduct income taxes directly from their checks. 

In other words, anyone who does not have taxes deducted from their salary must file estimated quarterly taxes, as this taxation is also known.

This includes members of companies that operate as Limited Liability Companies, owners of rental properties, and other investors who receive additional income from those derived from their jobs, regardless of whether they are subject to withholdings.

Quarterly taxes fall into two categories: the independent employment tax (Social Security and Medicare); and the business income tax or any additional income.

Businessman works with W-4 tax form and calculator. cocnept: quarterly taxes

Advantages of filing quarterly taxes

Although filing quarterly taxes can be difficult since it involves doing more paperwork, it also has some advantages:

  • Paying quarterly taxes allows you to distribute your tax responsibilities throughout the year and makes it possible for you to better organize your finances.
  • A great advantage for freelancers is that they can deduct many business expenses from their taxes, such as meals with their customers, trips to attend events, software, and costs related to vehicles and transportation. 
  • If you work from home, you can also deduct certain expenses, such as certain furniture and public services.

When are quarterly taxes due?

According to the IRS, both independent professionals and sole proprietorships must file taxes quarterly. These are the deadlines for 2019:

April 15

This is the deadline for the first quarter. You must pay the estimated quarterly taxes on your income from January, February, and March.

17 June

Here you need to pay your quarterly taxes for April and May. 

September 16

This day is the deadline to pay quarterly taxes for June, July, and August.

January 15, 2020

The taxes for September, October, November, and December of 2019 must be paid on this date.

Tax day concept. The USA tax due date marked on the calendar. concept: quarterly taxes

One more advantage of filing quarterly taxes is that you can make payments every month. For example, if you have to pay $1,200 in taxes during 2019, you can pay $100 per month instead of $300 four times a year.

How to file quarterly taxes in 3 steps

Below, you will find the basic procedure to file your quarterly taxes. 

#CaminoTip
If you are not sure about the steps to follow or even if you feel confused, it is best to seek the help of a tax advisor or use tax software.

1. Calculate how much you owe

You can calculate how much you owe based on your adjusted gross income (AGI). If you expect your income to be similar to your AGI from last year, this amount will serve as a basis for calculating how much you should pay this year.

You must adjust the amount by adding or subtracting money depending on how much you expect to earn this year. After determining your adjusted gross income, and to obtain the total amount you owe, you must multiply your AGI by the corresponding income tax rate according to the 2019 tax bracket.

Finally, divide the taxes you owe between four to discover how much you should pay each quarter. 

For example, if you owe $3,000 in taxes, you have to pay $750 per quarter.

2. File the appropriate forms

To file the quarterly taxes you must complete Form 1040-ES. In it, you will have to clarify what your income and tax obligations are.

If for some reason you miscalculated your earnings and filed a value greater or lower than what you were supposed to, you can complete Form 1040-ES. 

If you overpaid, you can get a refund or apply the surplus to the next quarter.

  1. Choose a payment method

It is possible to pay your quarterly taxes in several ways. 

You can send a check along with Form 1040-ES or pay using the IRS online payment platform. If you pay directly from your bank account, the operation will have no cost. But if you use a credit card, you will have to pay a small fee.

Tax declaration with dollars and coffee top view. Concept: quarterly taxes

What happens if I don’t pay my quarterly taxes on time?

The IRS will fine you if you don’t pay the taxes that you owe as a contractor or sole proprietorship. The same will happen if you pay less than what you should. 

If you are late in payments, you may also be subject to penalties.

However, in some situations you may be exempt from these sanctions:

  1. You couldn’t pay because you were the victim of a natural disaster or a fortuitous circumstance. 
  2. If you are at least 62 years old, you are retired, or you became disabled during the fiscal year, and you could not pay the correct amount, the IRS will consider that you didn’t file and pay your taxes due to intentional negligence. 

Don’t forget to pay your quarterly taxes!

If you are an independent contractor or a sole proprietorship, you are required to file quarterly taxes. During the fiscal year, you must pay in four installments what you owe in taxes.

First, you will have to calculate how much you owe based on your adjusted gross income and fill out Form 1040-ES. You should keep in mind that if you do not meet the deadlines or skip your payments, you will be subject to fines.

Although filing quarterly taxes can be difficult, it brings many advantages for sole proprietorships, such as deductions and the possibility of paying taxes in more than four installments per year. This can be a relief for your business finances.

If you want to know more about quarterly taxes, keep reading: 

How to pay the quarterly taxes of your small business

In Camino Financial our motto is “No Business Left Behind”. We live up to it by offering the best financial products on the market, in addition to offering our members educational resources that will help them grow their businesses.

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