If you’re an independent contractor, a self-employed sole proprietor, or own your own business, you’re probably putting the finishing touches on your taxes before April 15th rolls around in a few days. However, in addition to your annual taxes, your first quarter estimated taxes are also due. If this is news to you, you’re not alone. Many independent contractors and self-employed people aren’t aware of having to pay quarterly estimated tax, and that failure to do so can lead to stiff penalties. To help you understand, our Raleigh small business accountants can help you clear up the confusion surrounding quarterly estimated taxes.
Most people who are employed have taxes withheld from their paycheck each pay period, typically federal income tax, Medicare, and Social Security. However, people who are are independent contractors and receive a 1099 (instead of a W-2) and self-employed people typically don’t have taxes withheld from their pay, and it is their responsibility to pay taxes on their income.
Paying quarterly often reduces your tax burden at the end of the year, preventing you from getting hit with a massive bill, but even if you prefer to wait and pay in one sum, you can’t. Paying quarterly taxes is required for nearly all self-employed people and businesses, and failing to do so often comes with penalties.
To pay your quarterly taxes, you need to fill out Form 1040-ES. You’ll see it’s not too different from the standard 1040 filled out when you do your annual tax preparation. Once the form is filled out, you submit it with your payment voucher and your payment and send in a check or money order to the Internal Revenue Service.
There are some exceptions to paying quarterly estimated taxes, such as if your taxable income is under a specific amount. A CPA can help you determine if you are required to pay.
If you own a sole proprietorship or a limited liability company (an LLC), either alone or with a partner, this is considered a “pass-through” business, meaning any profits or losses of the business are personal gains or losses for the individual. The profits are reported on your personal taxes, rather than the LLC itself paying income tax. Because of this, just like independent contractors, you are responsible for paying quarterly taxes on your share of any profits.
Corporations also have to file and pay quarterly taxes, but unlike personal taxes paid by independent contractors and owners of sole proprietorships, partnerships, and LLCs, the corporation files IRS form 1120-W.
If you are required to file and pay quarterly taxes, they must be paid to the IRS four times each year by specific deadlines. For 2019, the deadlines to pay are:
Failure to pay your estimated taxes on time or not paying enough can come with steep penalties. However, there’s not a set amount, the penalty varies depending on the tax owed and how late the payment is.
At C.E.Thorn, CPA, PLLC, we understand that as a self-employed person or business owner, keeping up with taxes is time-consuming and can even be overwhelming. That’s where we can help! We work with individuals and businesses around Raleigh, offering a variety of financial services designed to save you time and lower your tax burden. Learn more about our financial services by calling us at 919-420-0092 or filling out our contact form to schedule a consultation.