Estimated Taxes and Filing Deadlines: September 15th is an important one!
We’re almost 3/4s of the way through 2017 already, and what does that mean for you as a self-employed individual or small biz owner?
What you need to know about estimated tax payments:
If you have income that was not subject to withholding, it is more than likely that you will be required to make quarterly estimated tax payments to both the IRS and your state tax authority. All income derived from partnership, s-corporation, or a sole proprietor/single member LLC needs to be included in your estimated tax calculations.
When is the next estimate payment due date?
September 15, 2017.
How much needs to be paid in?
To avoid late payment penalties, you are required to pay in 3/4 of the lesser of:
90% of your current year tax liability, or
100% of your 2016 tax liability
*If your tax liability is under $1,000, don’t worry - just pay this at filing time.
If you did not make a 1st or 2nd quarter payment, you would have incurred daily compounded interest and monthly underpayment penalties.
How are they calculated? (Want to DIY? IRS Worksheet included to help)
You will need to estimate your adjusted gross income, deductions, credits, to arrive at your projected taxable income for tax year 2017. The IRS has instructions and a worksheet you can use to estimate the amount you owe.
On the state level, you will have to do a little more research regarding your tax liability, what credits and deductions you are entitled to as each state functions independently and have their own tax rules.
Have your Federal and State return from the prior year handy. Use this as an outline or a check that you’ve included all the income and deductible items reportable by you.
Why should you pay your estimates?
There are monthly penalties and daily compounded interest on the underpayment of your tax liability that can add up to thousands of dollars. This can be especially painful for any new business or any business for that matter. A good tax professional can help you with the calculation so you’re not paying too little or perhaps even worse, too much. Making estimated tax payments also means no big expensive surprises when you file your return. Let’s admit, we all hate those. See, 3 Ways to Make Tax Time Better.
Why should you calculate your 3rd quarter payment?
Cash flow. Typically, business owners are nervous to hear from their tax accountants because we associate CPAs with a high tax bill, rightfully so. Taxes are often the biggest cash outflow each year personally and for a business. Be proactive, work with your CPA to plan for payments and figure out how much you will owe next April.
How do you pay them?
Here are your payment options.
IRS Direct Pay: Go directly to the IRS website. It’s secure and free, simply enroll, indicate the reason for payment (estimated taxes), and make the payment using funds from your bank account.
EFTPS: This service is offered by the U.S. Treasury Department. Enrollment will be required.
*The options above are for your Federal tax payments only. For your state payments, go to your state tax authority’s web page and follow their instructions on how to pay. Certain states do not have an electronic payment option available yet. Specify to us which state you live in and we can give you instructions on how to pay.
September 15th, 2017 is also an important date for:
S-Corporations on extension: File your 2016 return, use Form 1120-S
Partnerships on extension: File your 2016 return, use Form 1065
C-Corporations: The third installment of its 2017 estimated tax is due.