What Are Estimated Taxes?
Hold up, business owners have to file taxes quarterly?
Well, sort of. The technicality is you’re not “filing” (keyword) taxes every quarter. Instead, the IRS requires business owners to make estimated tax payments every quarter of the year instead of all at once at the same time. Why? Is the IRS that greedy? *cough* yes *cough*. But in actuality, it probably helps save your bacon more than hurts you. I’ve seen (too many times) businesses that haven’t made big enough quarterly payments (and spent the money in the year), only to find themselves in a bit of a pickle come filing season. We don’t want that.
Note that you’ll also likely need to make quarterly tax payments to your state governments as well. These vary by state, so google “[your state] + estimated tax payment” for your specific situation.
Do I need to pay Estimated Taxes? What Happens if I Don’t Pay Estimated Taxes??
You need to pay estimated taxes if you will owe federal taxes in excess of $1,000 per year. That is most businesses in the beauty industry.
If you don’t make the quarterly payments (but should have) you could end up with an IRS underpayment penalty IN ADDITION to the taxes that you owe. The amount of that penalty depends on how much you actually owe when you file your return and the timespan you owed it. Oh buddy, the IRS loves interest.
When Are Estimated Taxes Due?
The Federal (IRS) estimated tax payments are due four times a year:
-Quarter 1 payment (January 1 to March 31): April 15
-Quarter 2 payment (April 1 to May 31): June 15
-Quarter 3 payment (June 1 to August 31): September 15
-Quarter 4 payment (September 1 to December 31): January 15
The state-specific payments vary depending on the state (I know, why can’t everyone get on the same page??). Most states follow the Federal deadlines, but be sure to check out your state’s department of revenue website for their due dates.
How Much Should I Pay Each Quarter?
If you are here looking for a calculation for your estimated quarterly taxes, I got you covered! Here is a free, SUPER-simple downloadable calculator that will lovingly hold your hand through the quick calculation, and might even keep you warm on a cold winter’s day with a cup of freshly-made hot cocoa and a home-knit blankie, only a mild exaggeration.
Note: the percentages in the calculator are estimations. If you believe you will fall into a higher or lower tax bracket you’re welcome to alter those percentages.
Additionally, extra emphasis on the “estimated” word here. These are estimates. You won’t know the actual amount until you file your taxes for the year when all deductions/write-offs, tax credits, marital status, and a number of other factors are all finalized.
How Do I Pay Estimated Taxes?
Either way it’s still simple, and you can choose whatever you feel most comfortable doing. The IRS does not care which method you use. I prefer the online method because you immediately get a confirmation the money was paid and there's no chance of it getting lost in the mail.
If you go the online route, go to the IRS website, choose direct pay, answer a few identity verification questions, and make your estimated tax payment.
If you use the print-out method it’s as simple as filling out your name, address, social security number, and the amount on the check you’re paying to the gov. Be aware that the IRS is about 9 months behind in opening mail due to the pandemic so if you're open to paying online now is the time to try.
Again, check with your specific state to see if you can pay them online, otherwise you’ll have to print out their state-specific form and mail it in the way your grandpapi did.
Sock away 30% of your income after expenses every week into a separate account so you’re not tempted to spend it. It is (understatement inbound) SO much easier to write a check from that separate bank account for the taxes you’ve been setting aside than to have to pull it out of your account of the money you thought you had.
For all my beauty-industry friends: Yes estimated taxes are a lot money. Sometimes it feels gut wrenching to pay the bill. But guess what? Paying taxes means you earned a profit. Take a moment to congratulate yourself on all your hard work and *maybe* even hope to be lucky enough to pay more next time.