If you are a small business owner or self-employed, and you are not making quarterly estimated payments for 2021, take some time now to look at your situation to see if you should.
Doing so now can help you avoid an unexpected tax bill and penalties when you file for your 2021 taxes.
Here are some additional details about estimated tax payments:
- When should you pay estimated taxes?
If you expect to owe $1,000 or more in taxes, you generally need to make quarterly estimated tax payments.
- Who needs to pay estimated taxes?
Anyone who does not pay enough taxes throughout the year is subject to penalties when filing their tax return. However, if you do not have tax withheld from your income, then you should be extra diligent in determining your tax obligations. This includes business owners, self-employed individuals, sole proprietors, gig workers, partners, and S-corp shareholders.
- What about corporations?
Corporations generally must make these payments if they expect to owe $500 or more on their 2021 tax return.
- What happens if I don’t pay estimated taxes?
If it is determined that you should have been paying quarterly taxes, and you did not, you can be assessed an underpayment penalty. The penalty may apply even if you are due a refund.
Knowing whether you should be paying quarterly taxes starts with your expected tax liability. This can be determined by looking at your prior-year tax return and your annual expected profits. If you are unsure where to start, don’t panic. Our team of accountants and tax professionals can help you determine what, if anything, you should be paying.