At Business Camp this year, we were blown away by the knowledge of speaker Hayley Tumanjan regarding all things tax-related so, of course, we invited her here to share more.  Today Hayley and her partner, Maria Tumanjan, are sharing all the details about estimated taxes – super important for all business owners to know.  Read on to learn who these taxes apply to, what they are, and when you need to file.

Estimated Taxes: The Who, What, and When

By Hayley Tumanjan & Maria Tumanjan

Contrary to popular belief, paying estimated taxes is not optional for business owners, and filing them incorrectly can cost you. Our discussion below will give you a general overview of estimated taxes for small business owners, and a Tax Fix to help you deal with them in a painless way.  

The Who

First, let’s determine if you are required to pay estimated taxes.  You need only meet one of the following conditions to have a requirement:

  • you expect to owe $1,000 or more upon filing your return as a small business owner (sole proprietor, part of a partnership, or party to an s-corp)
  • you expect to owe $500 or more upon filing your return as a C-Corporation

A good indicator is last year’s tax return.  Have a look at what was owed when your taxes were completed, and also think through how your business income has changed in the current year.

You do NOT have to pay estimated taxes if all three of the following conditions are met:  

  1. You did not owe any taxes in the prior year and
  2. you were a US Citizen or a resident alien for that entire “previous year”, and
  3. your 2014 taxes covered a 12 month period.

We found Figure 2-A from IRS’ Publication 505 (2015) Tax Withholding and Estimated Tax to be very helpful in understanding if you will need to pay estimated tax.

Please take a look at https://www.irs.gov/publications/p505 and see below.

.

Pub 505 tax withholding

 

The What

You can think of estimated taxes as the amount of money that would normally be withheld from your paycheck by an employer.  Estimated taxes are the income and self-employment taxes you would normally pay when you file your annual tax return, calculated for a shorter period:  a quarter of the year.  For example, the first quarterly payment is due on April 15th of the current tax year.  The April 15th payment is based on the results of your company’s operations from January 1st until March 31st.   This is a good time to think about changes in the growth of your business, and adjust for that in your payments.).

 

The When

If you fall within the threshold above, you will need to make quarterly tax payments to the IRS on or before the following dates:

April 15th

June 15th

September 15th

January 15th (Next Year)

 

Your Tax Fix

The easy way to keep on top of your estimated taxes, as a small business owner, is to save a portion of all income in a separate account.  We often advise clients to take a look at last year’s tax return, and find a % of total income that would cover their tax liability and some.  Throughout the year, each time you collect from a customer, or reconcile your monthly bank activity you should make a corresponding transfer from your main account to a savings that will pay your estimates.  You might worry about how this cuts into your working capital throughout the year. It’s best to discuss your thoughts with a CPA, and find a strategy that makes the most sense.

These tips are great for any business, and you may find them to work for you.  If you find yourself with a specific question, give us a call.  We are happy to discuss and help you find a process that works best for you and your business.  Remember that advice is always better when it’s tailored to fit your individual situation.

Yours Truly,

Hayley Tumanjan & Maria Tumanjan

Tumanjan & Co.

 

Hayley Tumanjan

Hayley Tumanjan
Maria Tumanjan

Maria Tumanjan

tumanjanandco.com

facebook.com/tumanjanandco

@haytum (insta)

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