For Americans who receive regular paychecks from their companies and an annual W-2, you are most likely not making estimated tax payments. Taxes are withheld from each paycheck, and then you file your taxes each April and either get a refund, or potentially owe a balance due.
The responsibilities for W-2 employees and business owners are much different. In order to stay in compliance, business owners must make estimated quarterly tax payments. Even if you have a ‘side hustle,’ you should be making estimated tax payments.
The federal government treats income tax as a ‘pay as you go’ system. That means business owners, those that participate in the gig economy, independent contractors, and freelancers are required to pay estimated taxes on income earned during the year. Investors and retirees should also make these payments since a significant portion of their income is not subject to withholding.
Generally, sole proprietors, partners, and S Corp shareholders have to make quarterly tax payments if they expect to owe a tax of more than $1,000 when their taxes are filed.
These estimated tax payments are due 4 times a year. The dates for 2023 are:
It’s important to pay quarterly tax payments on time to avoid penalties, even if you are ultimately owed a tax refund. Business owners can also be assessed a penalty for underpaying their quarterly tax payments.
It doesn’t have to be scary. To make sure that you are paying the right estimated quarterly amounts, the best thing you can do is to work with a proactive CPA who will help you size up your estimated income minus estimated expenses to determine what you should pay quarterly. Working closely with your CPA will also help you avoid surprises that no one enjoys at tax time.
Business owners deserve to reach their full potential without being limited by what they don’t know. By enlisting the help of a tax professional, you’ll be free to focus on building and enjoying your business with confidence.
