Understanding When Quarterly Taxes Are Due for Small Businesses

Quarterly-taxes
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.

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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.

What Are Quarterly Taxes Used For? 

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.

Why Make Quarterly Estimated Tax Payments? 

Quarterly tax payments are convenient for several reasons:

  • They allow you to balance your books more regularly, as you don’t have to save up a year’s worth of taxes for one big payment every spring
  • They keep you in compliance with IRS laws
  • They prevent you from being subject to certain tax penalties
  • They allow you to adjust your tax payment amounts throughout the year if your income fluctuates. For instance, if you make less profit one quarter and more profit another quarter, you can make tax payments of different amounts for both quarters

Who Needs to Pay Estimated Tax? 

Estimated tax payments are required from:

  • Individuals whose taxes are not automatically withheld from their paychecks. These include sole proprietors, partners in LLCs or partnerships, and S corporation shareholders
  • Individuals who expect to owe taxes of greater than $1000 or more when they file their returns
  • Corporations who expect to owe taxes of more than $500 or more when their returns are filed

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.

Penalties for Not Paying or Underpaying Estimated Taxes

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.

What Are 2021’s Estimated Quarterly Tax Due Dates? 

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:

  • April 15 for the first quarter
  • June 15 for the second quarter
  • September 15 for the third quarter
  • December 15 for the fourth quarter if your business counts as a C-Corporation OR
  • January 18 for the fourth quarter for all other businesses

Fiscal Year Due Dates

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:

  • If filing a Form 1040 tax return, your quarterly taxes are due on the 15th day of the fourth month after the end of your tax year
  • If filing estimated tax payments Form 1040-ES, payments are due on the 15th day of the fourth, sixth, and ninth months of the tax year, as well as the 15th day of the first month after your fiscal tax year ends
  • Partnerships must file Form 1065. Forms are due on the 15th day of the third month after the end of your tax year
  • Corporations file Form 1120, and forms are due on the 15th day of the fourth month after the end of the tax year
  • S Corporations file Form 1120S, and forms are due on the 15th day of the third month after the end of your tax year. All estimated payments are due on the 15th day of the third or fourth, sixth, ninth, and 12 months of the tax year

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.

How to Pay Quarterly Estimated Tax Due Dates

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.

Summary

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

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