Being in business can be challenging, especially when it comes to filing taxes properly. If your business is an LLC or S corporation, ask your tax professional if the QBI deduction introduced by the 2017 Tax Cuts and Jobs Act applies to you. This allows a 20% deduction of income through two avenues: 1) Qualified Business Income, and 2) Real Estate Investment Trust.
Who Pays Estimated Tax Payments?
Those who owe $1,000 or more in federal tax for the current year after deductions of withholding and credits.
Those whose withholding and credits will be less than the least of the two amounts in bullet one below.
How to Estimate Taxes Accurately
Pass-through entities are able to pass business income onto their owners’ income tax filing(s). Business owners will usually pay estimated taxes quarterly throughout the year. Self-employment income, income through renting, investment income, or income from capital gains is not subject to withholding.
Make sure to pay either 90% of the current year’s tax liability, or 100% of last year’s tax filing.
File on time.
Properly Identify Your Business Status
As long as you’ve paid the majority of your tax liability for the year, the IRS will generally work with you. In early 2019 the Internal Revenue Service went so far as to waive the tax penalty for those whose 2018 withholding and estimated tax amounts only met 85% of their liability. This was a rare scenario and likely will not be seen again! Make sure to pay the smaller amount of either 90% of the current year’s tax liability, or 100% of that of the previous year.
Estimated Tax Deadlines
It is simple to meet the quarterly deadlines when paying estimated taxes. If you need to use an alternate schedule to pay your estimated taxes, make sure that you are consistent. Adjust the subsequent payments accordingly to make up for the loss incurred if a month is skipped. Usually, estimated taxes are paid quarterly on the 15th of the month as listed below.
Are you a sole proprietor? Are you a partner? Your status in the business affects the taxes you pay.
Sole proprietors will pay income tax on business profits as well as self-employment taxes to cover unfunded tax liabilities.
Partnerships will pay the same as above but will only pay income tax on their specific portion of the business profits.
For more information on estimating your taxes, contact us. Our qualified staff can quickly assess your tax liability and advise your company on an estimated tax payment schedule that works for you.
Tax Tips for the Self-Employed – Foster Financial
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