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Updated for Tax Year 2022 • October 18, 2022 09:29 AM OVERVIEW Self-employed taxpayers likely need to pay quarterly tax payments and meet key IRS deadlines. Here’s a closer look at how quarterly taxes work and what you need to know when filing your tax returns. For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post. Estimated tax paymentsWorking for yourself presents a host of benefits, such as never having to report to a boss and setting your own hours. It also carries a few added tax requirements, such as paying your taxes quarterly instead of with each paycheck as a W-2 employee would. Keep reading to learn answers to questions like, "Who has to pay quarterly taxes?" "When are quarterly taxes due?" and "How do I pay quarterly taxes?" Who is required to file quarterly taxes?If you work as a self-employed individual or small business owner, you likely need to pay quarterly estimated taxes. You're typically considered self-employed if you work as:
Who should pay estimated taxes?The IRS uses a pay-as-you-go income tax system, meaning you must pay your taxes as you earn income. It enforces this by charging penalties for underpayment if you haven't paid enough income taxes through withholding or making quarterly estimated payments. It also charges penalties on late payments even if you end up getting a refund. The IRS uses a couple of rules to determine if you need to make quarterly estimated tax payments:
These are commonly referred to as safe harbor rules. The 100% requirement increases to 110% if your adjusted gross income exceeds $150,000 ($75,000, if you're married and file separately). One exception applies to individuals who earn at least two-thirds of their income from farming or fishing. The requirement is to pay in two-thirds of your current year tax or 100% of your prior year tax. Also, there is only one estimated tax payment date - January 15 of the following year. Additionally, if you file and pay in full by March 1, then estimated tax payments are not required. Paying your taxes quarterly can avoid the cash crunch you might face come tax time. Paying in quarterly installments can make paying your bill far easier than one lump sum payment, especially if you've underestimated your taxes due. What taxes do self-employed people pay?As a self-employed individual, you file an annual tax return but typically pay estimated taxes every quarter. Quarterly taxes generally include two categories:
For example, in the 20221 tax year:
To estimate your taxable income as a business owner:
If you have significant changes in income or expenses during the year, that may impact the quarterly taxes you need to pay. For example:
What is the qualified business income deduction?You may have a chance to reduce your self-employment income further by claiming the qualified business income (QBI) deduction. This allows you to reduce your pass-through income from self-employment or owning a small business by up to 20% on your tax return. You can reduce the net amount of qualified items of income, gains, deductions, and losses tied to your trade or business. This means items like capital gains and losses, dividends, interest income, and other nonbusiness gains and losses don't figure into this calculation. In general, to claim the QBI deduction, your taxable income must fall below $170,050 for single filers or $340,100 for joint filers in 2022. Tax year 2021 has limits of $164,900 and $329,800, respectively. You first determine your self-employment or business income and report your adjusted gross income on Form 1040. From there, you can calculate this pass-through deduction. When are quarterly taxes due for 2022 and 2023?To avoid an Underpayment of Estimated Tax penalty, be sure to make your payments on time for tax year 2022:
For tax year 2023, the following payment dates apply for avoiding penalties:
How to pay quarterly taxesOnce you've calculated your quarterly payments,
You have other options as well when you show an overpayment of tax after completing Form 1040 or 1040-SR. You can apply all or part of your overpayment to go toward your estimated tax for the current tax year rather than be refunded. Consider this amount when estimating your tax payments for the current tax year. You can treat the overpayment credited toward your estimated taxes as a payment made on the April deadline for the first quarter of the current tax year. You can use your new total annual income to estimate your quarterly payments for the next tax year. You can also use software like QuickBooks Self-Employed to track your income, expenses, and deductions throughout the year, which will help with estimating your quarterly payments. TurboTax Self-Employed will ask you simple questions about your life and help you fill out all the right forms. Perfect for independent contractors and small businesses. We’ll search over 500 tax deductions to get you every dollar you deserve and help you uncover industry-specific deductions. Perfect for independent contractors and small businessesTurboTax Self-Employed searches over 500 tax deductions to get you every dollar you deserve. Real experts. Trusted technology.Uncover industry-specific deductions, get unlimited tax advice, & an expert final review with TurboTax Live Self-Employed.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business. Why do LLC pay quarterly taxes?Paying single member LLC quarterly taxes to the federal government is required since you are paying self-employment tax on income received through your LLC. Self-employment tax is separate from taxes paid on gross income.
Do you have to pay quarterly taxes your first year in business?The IRS requires most small business owners to make quarterly estimated payments if they expect to owe tax of $1,000 or more. 1 Estimated payments include two types of taxes: income taxes and self-employment taxes.
How do I pay my quarterly taxes to the IRS for an LLC?You may send estimated tax payments with Form 1040-ES by mail, or you can pay online, by phone or from your mobile device using the IRS2Go app. You can also make your estimated tax payments through your online account, where you can see your payment history and other tax records. Go to IRS.gov/Account.
Is it mandatory to pay quarterly taxes?As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly.
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