Everything You Need to Know About Paying Quarterly Estimated Taxes

September 15th is almost here…

That means your estimated quarterly taxes are due if you’re a freelancer, contractor, or business owner.

Don’t worry, though. It doesn’t have to be as stressful as it sounds. This week’s podcast episode will walk you through everything you need to know about estimated tax payments, from how to calculate them to when you need to pay.

Tip #1: Know what type of entity your business is. 

Selecting your entity correctly isn’t just a legal thing. It can be a massive tax advantage, too. A business entity describes any sort of organization designed to do business.

Most businesses fall under one of four categories: sole proprietors, partnerships, corporations, or limited liability companies. It’s important that you research these 4 types and decide which one is best, most aligned, and most advantageous for your business. 

From there, you need to make sure your tax filings align with the structure you’ve chosen. You don’t want to file as a sole proprietor if you’re actually a partnership!  True story: I’ve seen this scenario more than once.

Tip #2: Always think about future tax savings. 

When it comes to money, I never discount any savings, no matter when they come into play. So while putting money into my Roth IRA account might not save me money right now, it WILL in the long term. It’s super important that you look at all angles of your tax plan. If you put taxed money into your ROTH now, you could build up a retirement fund of tax-free money for the future. Yes, you might be spending more up front, but in the long term, you’ll be saving tons. 

Tip #3: Know your employment type. 

Yes, even as an entrepreneur we might still be considered employees. Depending on the type of entity your business is, you might have put yourself on the payroll of your business as an employee (meaning you give yourself a salary). If that’s the case, then you’re also going to have a W-2 form when you prepare your taxes. Make sure that you’re withholding the correct percentage and only paying quarterly estimated income taxes for your profit as the CEO and NOT the employee. 

Tip #4: Maximize all income and losses to your benefit. 

Following the last tip, you want to make sure you’re keeping track of all of the different types of income you’re earning through your business. Whether it’s salary, profit, or passive income, it’s absolutely vital that you keep a careful record of everything! This way, you can both maximize your passive income AND any business losses to your benefit when it comes time to file taxes. Remember, as the owner of your business — many expenses are eligible to be claimed as tax deductions. 

Tip #5: Make your quarterly estimated tax payments on time.

Even if it’s just a small amount; something is better than nothing. Remember those penalties and interest I mentioned earlier … waiting to pay your entire balance due when you file your income tax return is what causes that. Planning ahead and paying your liabilities throughout the year can help eliminate that.

Here are the due dates: 

Quarter 1 payments are due April 15 

Quarter 2 payments are due June 15

Quarter 3 payments are due September 15 

Quarter 4 payments are due January 15 of the following year.

I highly recommend adding all of these dates to your work calendar and setting a reminder for 2 weeks in advance to make sure you’ve prepared properly to make your payment.

Tip #6: Analyze your cash flow at the same time. 

Planning out your taxes gives you the perfect opportunity to analyze your cash flow, revenue, and profit margins. You’ll have to compare your earnings and losses to accurately predict your estimated taxes and file correctly, so use that to your advantage to manage your cash flow as well. 

I know this can feel like a lot to put into practice all at once. 

Take it slow and go one step at a time. Remember, it’s always better to be careful! And if you’re still banging your head against a wall trying to figure out how much you should be sending the government and how you could save on that, you’ll want to talk to a Certified Tax Coach. More than just an accountant who can help you file taxes, a tax strategist will find ways to save you money.