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Note From Larissa for Donna… It’s that time of year again. Estimated taxes for the third quarter are due for many individuals and businesses. On September 15th, 2023 it’s crucial to make this payment so we can ensure we are not using our tax money for operating costs. If you are struggling to make these deadlines, consider allocating income to a bank account as suggested in the Profit First system.
Estimated taxes allow us to prepay our income taxes to the IRS and State tax authorities. There are many advantages to doing this such as: paying in smaller amounts instead of a larger sum at the end of the year, and not spending it on operating expenses. It’s important to note that these payments are an estimation and not the final amount due. Therefore, the 4th quarter tax payment may be larger or smaller depending on the payments made throughout the year.
The good news is that not everyone is required to pay estimated taxes. You are expected to make estimated tax payments if you anticipate owing at least $1,000 in federal income tax when you file your return. However, there are other conditions that may require you to make estimated tax payments, these are:
You are self-employed or have significant income from a business.
You receive income from investments, such as dividends, interest, or capital gains.
You earn money through the gig economy or freelance work.
You do not have enough taxes withheld from your paycheck.
Failure to pay estimated taxes when required can result in penalties and interest charges Below is a step-by-step guide on how to complete your taxes and properly file them.
To calculate your estimated tax payments accurately, you'll need to estimate your total income, deductions, and credits for the year. Here's a basic overview of the process:
Estimate Your Income: Add up all your sources of income for the year. This includes salary, self-employment income, rental income, investment income, and any other sources of income.
Estimate Your Deductions: Determine your eligible deductions, such as business expenses, mortgage interest, medical expenses, and charitable contributions.
Calculate Your Taxable Income: Subtract your deductions from your total income to calculate your taxable income.
Determine Your Tax Liability: Use the current tax rates to calculate your estimated tax liability based on your taxable income.
Account for Withholding: If you have taxes withheld from your paycheck, subtract this amount from your estimated tax liability.
Divide by Four: To determine your quarterly estimated tax payments, divide your estimated tax liability (after withholding) by four, since you'll be making four payments throughout the year.
There are several ways to make payments:
Online Payments: The IRS offers an online payment system, the Electronic Federal Tax Payment System (EFTPS), which allows you to make payments electronically.
Direct Pay: The IRS Direct Pay system allows you to pay your taxes directly from your checking or savings account without any fees.
Credit or Debit Card: You can make a payment using a credit or debit card, but keep in mind that there may be processing fees associated with this option.
Check or Money Order: If you prefer to pay by mail, you can send a check or money order along with the payment voucher provided by the IRS. Be sure to allow sufficient time for your payment to reach the IRS by the due date.
Third-Party Tax Software: Many tax preparation software programs offer the option to make estimated tax payments directly from the software.
If you need additional help, contact your tax professional and accountant as soon as possible. If you do not have that support network setup, contact Sooter Consulting, they will be there to help.