One thing new entrepreneurs fail to consider is just how much, and how often they will pay state and federal taxes. The estimated tax payment requires some to pay in quarterly throughout the year. Business Insider breaks down the information for you.
Who has to pay estimated tax payments?
The rules for estimated tax payments vary based on business type:
For sole proprietors, partnerships, S Corporation shareholders, single member LLCs who elect to be taxed as a sole prop or an S corporation, or multi-member LLCs who elect to be taxed as a partnership or an S corporation: If you expect to owe $1,000 or more in taxes when you file your income tax return, you most likely will need to make estimated tax payments to the federal government (and potentially your state government too). Thereâ€™s one exception: if your witholdings and tax credits add up to as least as much as your prior yearâ€™s tax, you do not need to made a federal estimated tax payment.
For C Corporations and multi-member LLCs who elect to be taxed as a C Corporation: If you own a Corporation, you will need to make estimated tax payments if you expect to owe $500 or more with your tax filing.
How to Pay
If youâ€™re filing as a self-employed individual or disregarded entity (i.e. single-member LLC, partnership, or S Corp shareholder), you should complete Form 1040-ES. This form contains blank vouchers for mailing your estimated tax payments. You can also make your payments using the Electronic Federal Tax Payment System (EFTPS). For your state payment, you have to search online for the appropriate form, complete it and send it in with your payment.
Corporations must submit their payments using EFTPS, or can arrange for a tax professional, financial institution, payroll service, or other trusted third party to make deposits on their behalf.
Photo by Philip Brewer