While employees have their taxes withheld from each paycheck, business owners must follow a different set of rules. As a small business owner, you are responsible for paying self-employment taxes. Instead of making a single payment when you file income taxes, the IRS might require you to make four estimated tax payments throughout the year. Here are the current requirements for filing quarterly estimated taxes:
1. Are you filing as a sole proprietor, self-employed person, S corporation shareholder or partner? If the answer is yes, and you expect to owe the IRS more than $1,000 in taxes when you file your income tax return, then you will need to file quarterly estimated taxes.
2. Are you filing as a corporation? If yes, and if you will owe more than $500 at tax time, then you will be expected to file quarterly taxes.
3. Did you have tax liability last year? You will probably have to file quarterly estimated taxes for the current tax year.
4. Was your tax liability for last year zero? If so, then you will not have to file quarterly estimated taxes this year. You must have been a U.S. citizen for the entire year, and your last year’s tax return must have covered an entire twelve month period for this to be applicable.
5. Are you a farmer or fisherman? The rules for quarterly taxes are different for you. Please contact us if you have questions regarding the IRS’ policies for estimated taxes regarding farmers and fishermen.
The IRS rules dictate who must pay quarterly estimated taxes. If you fall into this category, you are responsible for making sure these payments are taken care of. If you fail to make quarterly estimated taxes to the IRS, or if you underpay, you could be subject to penalty. If you have further questions regarding quarterly taxes, please contact us today.