Estimated Tax for Self-Employed and Small Businesses

Estimated Tax is the method to pay tax on income that is not subject to sufficient withholding, often self-employment and business income. 

The federal income tax is meant to be pay as you go: taxpayers are required to pay in over the course of a year, then file a return to determine total tax for the year.  If a taxpayer paid in too much, they get a refund, if they underpaid, they owe the IRS. 

In general, if taxpayers expect to owe at least $1,000 in tax, they must make estimated payments.  If they do not make sufficient estimated payments, they may be subject to underpayment penalties.

Penalties may be avoided by making estimated payments of at least the lesser of:

90% of total tax liability

-or-

100% of previous year total tax
(110% if AGI is more than $150,000 or $75,000 if married filing separate for current year)

Estimated tax payments are due quarterly, with specific due dates: April 15th, June 15th, September 15th, and January 15th.  Because it is pay as you go, you may incur penalties if you pay everything in the last quarter.  Be sure to pay throughout the year.

If you had no tax liability in the preceding year, you may not be subject to underpayment penalties.  There are some requirements and qualifications.  Like every aspect of the federal income tax there are complex rules and requirements.  Be sure to call for a consultation. 

 

This site contains general information for taxpayers.  Each situation depends on its unique facts.  Do not rely on this content as a sole source of information.  Seek professional tax advice before taking any action based on this information.

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