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You’re rolling right along with your business when you realize that you haven’t paid quarterly estimated taxes in a long time. You know that if you don’t pay them you’ll likely get hit with a penalty or fine come April. However, you also figure it’s not the end of the world and you can afford it – after all, time is money, and QETs take a lot of time.
There are some good reasons you should pay attention to quarterly estimated taxes, though, and they’re not all because of the fines and penalties. Need a little refresher about these taxes and why they’re important? Read on.
Did you forget all about QETs? You’re not alone. Businesses everywhere let them slip now and again, some more than others. For future reference, here’s the upcoming schedule:
Q1 – April 15, 2014 (you should have already paid this one on income made from January 1 -March 31, 2014!)
Q2 – June 16, 2014 (pay on income made between April 1, 2014 and May 30, 2014; this due date falls on the 16th because the 15th is on a Sunday)
Q3 – September 15, 2014 (pay on income made between June 1 and August 31, 2014)
Q4 – January 15, 2015 (pay on income made between September 1, 2014 and December 31, 2014)
To get each payment, add up your estimated sales from this year and subtract your business expenses, figure out how much tax you will owe on that profit, and divide by four. This gives you an estimated payment to send in. Use the instructions on Form 1040-ES as your cheat sheet.
You’ll probably notice something strange: you’re being asked to estimate how much you will make and spend in your business this year. This is where the “estimated” part of quarterly estimated taxes comes into play. not every quarter is going to have the same amount of taxes. While your payments may never be 100% accurate, it should all even out when you do your federal taxes in April. You may owe a little more or even get a small bit back, but it should even out.
And even if your estimate is way off, consider the “Safe Harbor Rule.” As long as you pay as much into the system this year as you owed in income taxes last year, you won’t see fines and penalties. Though if this year turns out to be much more profitable than the last, you might find yourself owing a large remainder of your tax bill come April 15th. That’s why it really pays to pay attention to your estimate!
Why You Should Pay Attention
Thing these taxes are a waste of time? Here are a few reasons why you should reconsider.
Preparation – On a basic level, practice makes perfect when it comes to taxes. The more you do them, the better you get…and it’s not like they’ll ever go away. This will also help you with federal and state taxes, as you’ll be used to crunching numbers and sending in paperwork.
Organization – Always feel like you’re running trying to catch up with your business? It could be because you’re disorganized. Regularly doing your taxes every quarter forces you to get your finances in order and get on a regular schedule. This organization could then spread to the rest of your business and even personal life.
Penalties & Fees – Did you really enjoy wasting money? While the fees and penalties might not be exorbitant, they do add up. Plus they’re totally avoidable.
These are just a few reasons why you should pay attention to your quarterly estimated taxes. You can probably think of a few yourself. Put these babies to bed and you can get back to doing what you do best – running your business!