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Everything You Ever Wanted To Know About Quarterly Taxes

Nothing in life is certain except for death and taxes.

Finance

No one is excited about paying taxes, but for the most part, they're unavoidable for the working woman. Yet, not everyone has to pay quarterly taxes. You may have to get acquainted with quarterly taxes depending on how you earn money and who signs your paychecks. Not only is it essential to know if you should pay quarterly tax payments, but you need to know what your tax liability is and the deadline to submit your taxes — unless you want the IRS visiting.


Who Needs To Pay Quarterly Taxes?

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Plan on paying taxes if you're a small business owner, you haven't had enough of your income withheld, or you're a self-employed individual. Unsure if you're self-employed?

You're self-employed or a small business owner if you're:

  • An independent contractor
  • A full-time/part-time freelancer
  • An individual with a side gig
  • A sole proprietor
  • A business partnership member - LLC, LLP, LP, GP

You haven't had enough income withheld if:

  • You owe a minimum of $1000 in federal income taxes currently after accounting for your refundable and withholding credits.
  • Your withheld and refundable credits don't cover more than 90% of your tax liability for the current year or 100% of your liability for the previous year; whichever is lesser of the two. (The threshold is 110% as long as your adjusted gross income in the prior year was larger than $150,000 for jointly filed married partners and $75,000 for singles).

Who Doesn’t Have To Pay Quarterly Taxes?

You don't have to pay to make quarterly tax payments if you're a U.S. citizen or a permanent resident who had no tax liability from the previous year. Also, individuals who don't have untaxed income.

How To Estimate Quarterly Taxes

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To calculate your estimated tax, you should know your expected adjusted gross income, taxes, deductions, taxable income, and credits for the current year. Then, you can calculate your estimated quarterly taxes using a calculator or manually:

1. Determine Taxable Income. Start by estimating the total amount of income you're expecting to earn during the year. Then subtract deductions that are considered above the line (expenses the IRS allows you to deduct from your gross income) to get an adjusted gross income.

2. Calculate Income Tax and Self-Employment Tax. Once you know your adjusted gross income, it's time to calculate your taxes. First, you need to figure out your tax bracket to determine the rate that you are taxes based on your income. Then, take your income tax rate and multiply it by your adjusted gross income.

If you're self-employed, you calculate your taxes a bit differently. There isn't any need to pay taxes on self-employed income under $400, but if you make more than $400, then you're responsible for a 15.3% tax that's a combination of social security tax and medicare. But, you're only responsible for paying taxes on 92.35% of your estimated total income.

If you had a $50,000 estimated total income, the calculation would be 50,000 x 15.3*% 92.35%, for a total of $7,076.25 in owed taxes.

3. Total Taxes and Divide By Four. Lastly, add your income tax and self-employment tax for the current year and divide your total by four. So pretty much if you owe $10,000 in income tax and you owed $15,000 in self-employment tax, your total income tax is $25,000.

So next, you'd divide $25,000.00 by four, so your quarterly tax payment would be $6,250.

When Are Quarterly Taxes Due

If you plan on paying quarterly taxes, it's a bright idea to know when they're due:

  • If you earned income on September 1–December 31, 2020, your quarterly tax payment is due by January 15, 2021.
  • If you earned income on January 1–March 31, 2021, your quarterly tax payment is due by April 15, 2021.
  • If you earned income on April 1–May 31, 2021, your quarterly tax payment is due by June 15, 2021.
  • If you earned income on June 1–August 31, 2021, your quarterly tax payment is due by September 15, 2021.
  • If you earned income on September 1–December 31, 2021, your quarterly tax payment is due by Jan 18, 2022.

How Do I Pay Quarterly Taxes?

There are three ways to pay quarterly taxes; the choice is yours. You can pay your taxes the old school way by mailing your estimated tax payments with IRS Form 1040-ES or paying in cash at an IRS retail partner.

Or, you can keep it modern by paying electronically using the IRS's Direct Pay System or the U.S Treasury's Electronic Federal Tax Payment System. Keep in mind, there is a credit card fee of approximately 2% when paying electronically.

You can mail your estimated tax payments with IRS Form 1040-ES. You can pay electronically and use the IRS's Direct Pay system or the U.S. Treasury's Electronic Federal Tax Payment System, for example. Paying with a credit card carries of fee of around 2%.

Now that you have all of the proper knowledge to make quarterly tax payments, it's time to start actually planning to make your payments. Be sure to estimate your taxes reasonably in advance to avoid lacking enough funds to cover your tax payments. Or, you can simply reach out to an accountant who has the expertise to ensure your taxes are taken care of properly.

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