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Paying Estimated Taxes

Paying Estimated Taxes on Business Income

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If you are a business owner, you are not an employee and you don't have withholding taken from your pay (since you don't have a paycheck!). You can't wait until you file your tax return to pay your income taxes, so you must pay estimated taxes on a quarterly basis.  The estimated payments must also include payment for self-employment tax (Social Security/Medicare).

Learn about when to pay estimated taxes, how much to pay, and the penalties for non-payment. Also included are some questions you might not have asked but should ask, like what checking account to use for estimated tax payments. 

1. First Determine if You Must Pay Estimated Taxes

If you owe more than a certain amount of taxes on your tax return, you must pay estimated taxes the following year. Here is a breakdown of the minimum amounts you must pay to avoid estimated taxes.

2. Due Dates for Payment of Estimated Taxes

Estimated tax amounts are based on the amount of income for each quarter, and the due date is the 15th of the month following the end of the quarter. If you did not pay enough taxes (including self-employment taxes) last year, and you did not have enough withholding to cover the under-payment, you may be penalized for not paying enough estimated taxes.; Learn how to calculate the underpayment amount and more about underpayment penalties.

3. How to Calculate Estimated Taxes

You can do a rough calculation of the amount you owe for a year in estimated taxes. The IRS has a fillable form to do this calculaiton, you can use tax software, or you can do a paper-and-pencil calculation. 

4. Payment Methods for Estimated Taxes

You must pay estimated taxes on a quarterly basis if you don't pay enough income tax during the year.  Because most business owners are not employees (except in corporations), they don't have withholding for business income, so in many cases estimated taxes must be paid quarterly. 

5. Which Checking Account to Use for Estimated Business Taxes

The answer to this question isn't as obvious as it might appear.  Before you decide whether to pay estimated taxes from your business or your personal account, you must first determine where the tax bill comes from....read more

6. Underpayment of Estimated Taxes and Penalties for Underpayment

If you don't pay enough estimated taxes, and your tax bill is still too high, you can be penalized for this underpayment.  You can use Form 2210 to see if you are paying enough estimated taxes and learn about the penalty rates.  This is one calculation you might need help from your tax preparer to complete.

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