Regular Visits by the Tax Man

For most individual taxpayers, tax day comes just once a year — on April 15.  But, for many businesses and self-employed taxpayers, Uncle Sam expects a check four times a year.

Who pays

Unfortunately, you are one of those poor quarterly taxpayers if you are a sole proprietor, partnership or S corporation and any of the following applies to your situation:

• You expect to owe at least $1,000 in tax at the end of the tax year; or
• You expect your withholding to be less than:
  1. 90% of your tax this year, or
  2. 100% of your tax last year

Huh?

Essentially, if you think you will owe over $1,000 in tax, be prepared to calculate and make estimated tax payments.

But, if your business is a C corporation, you must make estimated tax payments if you expect to owe more than $500 in tax at the end of the year.

When payments are due

Estimated tax payments are due on April 15, June 15, September 15 and January 15. If you underpay one or more installments, you get charged interest until the day you catch up.

How much to pay

Unfortunately, there isn’t an easy answer to this question. The official answer is you must calculate your expected AGI, taxable income, taxes, deductions, and credits for the year, then use Form 1040-ES to figure your estimated tax.

To simplify things, you can withhold 100% of the tax you paid last year and make payments of 1/4 of that amount each quarter, instead of trying to estimate how much your tax burden will be this year.

The Tip

I have tried to be brief, but the rules are complex. So, anyone wanting more information should download IRS Publication 505 or IRS Publication 542 for corporations from the IRS website or talk to your tax advisor.