For small business owners and independent contractors, estimated taxes can be a real thorn in the bank account. However, if you owe estimated taxes and fail to pay quarterly, the penalty for failing to do so can make you wish you had.
Fortunately, if you're reading this blog then you probably are trying to figure out what you have to do to get out from under the estimated tax monster, and that's a good thing. The sooner you realize that you are not exempt from paying estimated taxes, the better, because the penalty will only get worse (that is, more expensive).
Below, you can get a few tips on paying estimated taxes.
Do It Now
If you forgot to make a payment and are only now realizing it, go ahead and make the late payment now and pay whatever penalty you have to If you don't know how much you need to pay, find your previous year's taxes and go to the IRS calculator. Generally, you have to pay 90% of your tax liability in estimated taxes, split quarterly.
If you are still lost or are newly self-employed, you'll want to pay very close attention to the next tip.
Hire a Professional
If you are absolutely lost when it comes to your taxes and finances in general, or if you are new to small business ownership or self-employment, hiring a tax professional to help will be well worth the money. You'll likely end up saving money due to the tax savings they'll help you find, not to mention the money you'd likely end up spending on tax penalties for the mistakes and late payments that most new business owners who try to handle their own taxes end up facing.
Review and Pay Every Quarter
Once you have your estimated taxes figured out, the best thing you can do is to review and pay them yourself quarterly. Set up a calendar alert for the 10th of every April, June, September, and January. Estimated taxes are due on the 15th of each of these months, and must be paid online or by phone or postmarked by that date. It is worth it to pay your accountant or tax lawyer to teach you how to do this if you need extra help with the process.
Each quarter, when paying your estimated taxes, use the time to review the business's finances generally. Review your accounts receivables, your payroll, your operations account, and any other financial accounts to ensure that everything looks correct and that you have the capital to get you through to the next quarter.