How to Estimate Taxes for Each Quarter in 2023
Managing your taxes is one of the most difficult aspects of running a business. Due to the complexity of federal tax law, it is simple for business owners to commit errors that lead to an audit. Making a mistake in your quarterly anticipated tax calculation is a common blunder. You’re undoubtedly familiar with the typical tax payment method for non-business owners. To pay the IRS, employers deduct a modest sum from their employees’ paychecks. In the spring, employees will file their estimate taxes and receive a W-2.
For non-employees, the regulations are a little bit different. In general, self-employed people and business owners who make a specific amount of money annually are required to pay quarterly estimated taxes.
If you don’t have an employer who does it for you, you are expected by the government to pay taxes on your income as you receive it. You can’t put off filing your taxes and paying them all at once until April. Keeping up with your expected tax payments is crucial for small businesses, even if it’s important for the majority of taxpayers.
How Can I Determine My Estimated Taxes?
IRS Form 1040-ES is used by small business owners to estimate their yearly taxes. If you’re not sure how to estimate your taxes, we advise that you speak with an accountant or tax preparer.
Estimated payments are calculated in three phases. The process entails figuring out your taxable income based on your marital status and income, and figuring out any credits and deductions you may be eligible for. Including child tax credits or credits for taxes already withheld, and figuring out your remaining tax liability.
1. Determine Your Overall Taxable Income
Finding out roughly how much you will earn per year, or your total projected income is the first step. You can either enter the precise amount you earn each quarter or the total amount you anticipate making this year.
For entrepreneurs and small business owners with consistent yearly revenue, estimating the total sum is easy. It would make more sense to total your actual income at the end of each quarter and pay taxes on that precise amount if you are a freelancer with erratic cash flow from quarter to quarter.
In either case, take into account any deductions you intend to make when determining your Adjusted Gross Income (AGI). If you don’t take deductions into account, you’ll pay far more than is necessary.
2. Take Taxes Into Consideration
Making sure you account for income tax and self-employment tax is essential once you have your AGI to accurately estimate your tax burden.
By dividing your AGI by your tax rate according to your income tax bracket, you may determine your income tax. Make sure to select the correct rate because tax brackets might change from year to year.
Individuals who earn $400 or more annually must also pay self-employment taxes. 12.4% of the self-employment tax rate goes toward Social Security and 2.9% goes toward Medicare.
To determine your taxable income for the self-employment tax, multiply your expected total income (not your AGI) by 92.35%. The amount you owe for self-employment can then be calculated by multiplying the outcome by 15.3%.
How Do I Make Estimated Tax Payments?
Form 1040-ES and a check or an online payment through the IRS website may be submitted using the voucher.
If you pay online using a bank account, there is no cost. There are $2.20 to $2.55 in fees or percentages of 1.87% to 1.98% of your payment if you opt to pay with a credit or debit card.
Who Has Unpaid Estimated Taxes?
The majority of independent contractors and enterprises must pay estimated taxes. However, it might not be necessary depending on your situation.
The overall amount you will owe is the main deciding factor. You must continue making quarterly tax payments if your total tax debt, including any projected payments you’ve already made, is $1,000 or more.
How to Easily Prepare Quarterly Estimated Taxes
Consider seeking assistance from the experts at Your Part Time Accountant if you’re concerned about fulfilling the standards or don’t have the time to figure it out.
Employing an accountant will help your company avoid fines and save money. Additionally, you’ll have more time to devote to creating and extending your organization, which is the task that counts most. Get assistance right away!