If Death and Taxes are Certain, Manage Your Taxes
One of the biggest headaches for the single business owner is taxes. Because there’s no Accounting Department down the hall or a benefits coordinator on the fourth floor of your company in Sacramento, it’s up to you to manage this important job.
Without the resources of a larger employer to manage your taxes, Social Security, and other benefits, you must take care of your books and calculate the amount you owe the government based on your business earnings. If you’re in business for yourself, your taxes must be paid as you earn or receive income throughout the year by estimated tax payments. The estimated tax is used to pay income tax, as well as other taxes like self-employment tax and alternative minimum tax.
If you fail to pay enough tax through estimated tax payments, you could be charged a penalty, and you could also be charged a penalty if your estimated tax payments are late—regardless of the fact that you’re due a refund when you file your tax return.
While it may seem easier to put this task off until the traditional tax season of March and April, it’s really in your best interest to pay the IRS in periodic payments.
Get Organized To Manage Your Taxes
A crucial part of this—and just about any big job—is to get organized.
For starters, the estimated tax payments are broken up into quarters: January-March, April-June, July-September, and October-December. A good system is to keep a file, both electronically and in hard copy, for each quarter. Record your profits, losses, and expenses. You should set aside money regularly to ensure you have sufficient funds to cover the amount you owe. You may want to have an accounts receivable account and another for taxes. Figure that roughly 30% of every deposit should be earmarked for Uncle Sam and transferred to that second account. When you have your financial documents in order, estimating the tax payment believed to be owed will be easier to understand. Consistently budgeting for taxes will make the on-time submission less of an issue and make for fewer tax headaches.
The IRS determined the payment schedule for 2016 was April 18th and June 15th, along with September 15th, with the last quarter’s payment due on January 17, 2017. However, if you are ahead of the game and file your 2016 tax return by January 31, 2017, paying the entire balance due with your return, you’re not required to make the fourth quarterly payment due January 17, 2017.
Making a Tax Payment
The IRS gives you a few options for submitting your payment. You can do any of the following:
- Sign up for the Electronic Federal Tax Payment System (EFTPS), which allows you to pay taxes owed (They also have a voice response system);
- Pay online via the IRS at www.irs.gov/payments;
- Pay using debit or credit card; or
- Send a check or money order using and estimated tax payment voucher.
Quarterly estimated taxes can be fairly painless if you get organized and prepare. Set up your calendar, maintain your documents, use a budget, and make on-time payments. This will help you keep your business financially savvy throughout the year.
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