For most Americans, tax payments are abstract responsibilities that they don’t have to pay attention to. The IRS simply deducts a small amount of each paycheck via “withholdings”, so most people don’t have to think about taxes. Instead, they get a small reimbursement from the IRS every year during filing season, as the IRS typically takes a little too much in tax payments (though this can vary from profession to profession). Small business owners have a much harder time on their hands. They have to manually calculate how much they owe in taxes using a maze of forms and guide books. They also have to make tax payments earlier than “tax season” if they want to stay in compliance with the IRS. Specifically, small businesses must file taxes before quarterly due dates. Understanding when quarterly taxes are due is vital for small business owners who want to balance their books correctly and avoid heavy penalties. Things can get even more complex if a business follows a unique fiscal year! Not sure when quarterly tax due dates are for your small business? Below, you’ll find a breakdown of estimated quarterly tax payments and an explanation for both calendar year and fiscal year quarterly tax due dates.
Quarterly tax payments are regular payments to the IRS that take the place of regular tax withholdings. Employees that work for businesses don’t usually have to think about tax payments. This is because automatic tax deductions are made from each paycheck they receive. However, employees paid in cash, or those who own their businesses have to pay taxes manually. While you could pay taxes every week or month, many business owners find it easier to make large tax payments every quarter simply. Quarterly tax due dates are deadlines before which you have to pay taxes for the previous three or four months (depending on the tax date in question). Quarterly taxes help keep your business compliant with IRS rules and ensure that you pay the right sum of taxes every year. The IRS typically requires quarterly tax payments to be made rather than allowing businesses to make one big yearly tax payment in spring.
Quarterly tax payments are convenient for several reasons:
These restrictions include most small business owners. In general, it’s a good idea to assume that you have to make estimated tax payments every quarter if you run your own business and your taxes are not paid for you through automatic withholdings.
There’s another big reason why you should aim to pay your estimated taxes both on time and in the correct amounts: the potential penalties you will face otherwise. If you owe less than $1000 in tax after subtracting any withholdings or credits, or if you pay at least 90% of your tax for the current year, you’ll avoid penalties. Farmers, fishermen, and other high-income taxpayers under certain circumstances are also exempt from penalties. But everyone else will have to pay penalties for underpayment of estimated taxes if they don’t pay enough throughout the year. The penalty can easily be in the thousands of dollars depending on the size of your business, your overall income, and more. So if you want to avoid the IRS demanding even more money from your small business each year, you’ll want to make your estimated quarterly tax payments on time.
There are two ways to determine your estimated quarterly tax due dates depending on whether you follow the calendar year for a separate fiscal year. If your business follows the calendar year for record-keeping, then your quarterly tax due dates are simple. Self-employed freelancers and very small businesses that don’t earn more than $100,000 in net revenue every year will typically follow the calendar year as there are fewer benefits from deciding upon and following a separate fiscal year (more on this below). If this is the case for you, your 2021 estimated quarterly tax due dates are:
Other small businesses may decide on a separate fiscal year that doesn’t follow the calendar year. A fiscal year is essentially a new tax year schedule, where you pay the IRS at roughly the same intervals as you would when following a calendar year, but the dates end up being different because your tax year starts on a different date. For example, imagine a small business that has a fiscal year that starts in April instead of January every year. That would mean that its first-quarter ends in either June or July instead of March or April. Some companies decide to follow fiscal years because they can better balance their books by having the big income sections of the year weighted toward the beginning or end of their tax year or for certain tax breaks. The IRS has different quarterly tax due dates depending on the type of business you own or the type of tax return file:
Your quarterly tax payment dates can also impact whether setting a new fiscal year is a good idea for your business. So consider the decision to follow the calendar or a separate fiscal tax year carefully.
The IRS provides several ways in which to pay estimated tax payments. You can either go to the IRS website or visit the EFTPS portal, both of which allow you to make electronic payments directly to the IRS. Through the EFTPS portal, you’ll be able to make regular estimated tax payments if your business’s income is relatively stable. You can also write the IRS a check every quarter, but be sure to do these several days before the deadline to spare. Again, the IRS will take travel time into account if they received your check late.
Understanding when and how to make quarterly tax payments if you are a small business owner is vital if you want to avoid being harshly penalized and balance your books correctly. Fortunately, you can calculate estimated tax payments using QuickBooks and other accounting software. This will help you keep track of how much money you need to save every quarter. Have more questions about estimated tax payments or how to leverage accounting software to its full extent? Or do you have other financing questions for your small business? Good news; Seek Capital can help with all of these needs and more. Contact us today and see how we can help your business! Sources: Fiscal Year (FY) Definition | IRS.gov Individuals 2 | IRS.gov Estimated Taxes | IRS.gov