Why be unsure about Taxes when you have a Quarterly Tax Payment Calculator?
According to the IRS, estimated tax penalties, which apply when a taxpayer underpays their taxes, are becoming more common. The number of persons who paid this penalty increased by roughly 40%, from 7.2 million in 2010 to 10 million in 2015. The fine varies, but it can be in the thousands of dollars.
The IRS advises people to look into their taxes regularly to avoid these fines. Penalties can be avoided by adjusting withholding on their wages or the number of their estimated tax payments. This is especially significant for those who work in the sharing economy, those who have many jobs, and those who have had substantial life changes, such as recent marriage or the birth of a kid.
You must choose to pay quarterly estimated taxes if you operate a business. While mailing the IRS a tax payment every three months may seem inconvenient, it might help your business.
When done correctly, estimated taxes payments allow you to understand your finances better and prevent unpleasant tax season shocks. This guide will teach you all you need to know about filing estimated taxes correctly with the help of a quarterly tax payment calculator.
What is the difference between quarterly estimated taxes and annual estimated taxes?
Quarterly estimated taxes are a four-part breakdown of all the taxes your company owes to the IRS for the year. Instead of paying your taxes all at once at the end of the year, you pay them in payments throughout the year.
If you’re self-employed, you’ll have to pay your taxes four times a year in “estimated” installments rather than one big sum. Because you’re estimating how much money you’ll make this year and paying taxes on that amount, it’s termed “estimated” (income tax, self-employment tax, and any other applicable taxes).
How do you figure out how much you should pay?
If you want to pay by check or money order, Form 1040-ES assists you in calculating your estimated taxes. You may do the math yourself or have your accountant do it for you. Check to verify if the income reported and deductions taken on the prior year’s federal tax return will be equivalent to the current year to calculate how much you owe.
Don’t forget to double-check that your prior year’s tax refund has been applied to this year’s taxes. Generally, the due date falls on the 15th of April, June, September, and January. However, for the year 2021, the due dates for quarterly estimated taxes have been set to 15th April, 15th June, 15th September, and 18th January (2022).
If the due date falls on a weekend or on a legal holiday, then the deadline is set for the next business day.
Taxpayers during the current financial year
If you have a fiscal year that is not the same as the calendar year, your fiscal year will determine your due dates. Taxpayers who choose a different fiscal year should consult with a tax preparer or accountant to fulfill all deadlines or they can use quarterly tax payment calculator to know the exact amount of tax.
Is it possible to make more than four payments?
Yes, you may make as many payments as you like during the quarter and submit them at any time. If you are underpaid for a quarter and need to make up the difference, you’ll need to make extra payments. If you make more in a quarter than you thought, this may happen.
It doesn’t matter how many payments you make; what matters is that you pay the correct amount by the quarterly due date. The IRS will charge you a penalty if you underpay your taxes.
Check out: Taxation Laws to Boost the Economy
The four advantages of paying your estimated taxes every quarter
If you’re thinking of skipping quarterly payments completely and paying a single amount at the end of the year, think again. Estimated taxes don’t have to be difficult, and there are some advantages to paying them.
Use this widget to calculate quarterly tax:
You stay out of trouble.
The IRS takes quarterly payments very seriously. You are almost certain to be fined if you disregard the regulations and pay in one single payment. Avoiding payments for the sake of your business isn’t worth it in the long run.
It protects you from the tax shock at the end of the year.
If you pay quarterly, you won’t be surprised by a large tax bill at the end of the year. Yes, you may underpay and must make up the difference—but that’s a drop in the bucket compared to having to deal with all of your taxes at once. Budgeting for quarterly payments also puts less of a strain on your financial flow than paying a huge sum at the end of the year.
You’ll have a better understanding of your financial flow.
You must keep track of your cash flow in order to make quarterly payments. If your company is still in its early phases of development and you don’t have a lot of costs to worry about, cash flow might not be on your mind. However, as your company grows, ensuring that you have adequate cash on hand to pay expenditures becomes increasingly difficult. Managing your cash flow today to plan your quarterly taxes establishes good financial habits for the future.
You and your bookkeeper and accountant can become friends.
It’s a good idea to arrange your cash flow with your accountant and bookkeeper’s advice; they can help you prevent underpaying or overpaying, and working with an accountant forces you to examine your financial practices, which is a good thing. Having an accountant check through your accounts and assist you when your firm is still in its early stages instills in you the habit of keeping your bookkeeping orderly. Making crucial company choices, filing taxes, and planning for development are all made easier as a result.
It may appear like paying estimated quarterly taxes four times a year is a bother. However, if you plan these quarterly payments right, you may actually reduce your tax burden by paying your estimated tax bill before tax season arrives taking the help of the quarterly tax payment calculator.
Read more: 4 Reasons Tax Planning Is So Important