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Keeping up with your finance as a small business owner or freelancer can be a real chore. Seriously, it seems like every day there’s some new thing you have to look at or calculate so you’re not charged a ridiculous fine. On top of every day finances, you also have to worry about taxes, which there always seems to be another payment coming up around the corner.
One of the most prevalent and confusing taxes small business owners have to deal with is the quarterly estimated tax, or QET. They come around every few months and if you don’t stay on top of them they can cause you huge problems. Worse, if you just ignore them, you can expect fines and penalties come April.
To help you out, let’s take a minute to go over what QETs are and how they can actually benefit your business.
What are Quarterly Estimated Taxes?
The U.S. is a pay-as-you-go-tax system. This is why, when you were an W-2 employee, you saw big chunks of taxes taken from every check. Quarterly estimated taxes are the government’s way of collecting pay-as-you-go tax money from small business owners, freelancers, and other independents. Since you don’t work 9-5 salary or wage jobs, the IRS had to make alternate arrangements to collect your taxes.
Every few months – January 15, April 15th, June 15th and September 15th – you and other business owners and freelancers are forced to calculate how much income you’ve made over the taxable period. This is so you can then figure out how much money you owe to the government to send it in.
What do I do?
First and foremost, it’s time to get organized if you aren’t already. Adding up all your sales and client invoices over a period of time involves finding all your old paperwork. This can eat up a lot of your time if you don’t know where everything is.
Instead of running around search for pieces of paper or receipts, simply sign up for an account at Outright. There you can import all of your business financial accounts (bank, credit card, even PayPal) and instantly see all your invoices for a certain time period so you don’t have to do all the calculations yourself. Plus, you’ll never have to worry about tracking your finances again since Outright will do it for you!
Sound tough? There is a short cut. You can look on last year’s tax form and see how much you owed to the government, then divide that number by four. The only caveat is that if you make a lot more money this year, you may want to make extra payments or be left owing extra tax come April.
Another tip: sign up for an account at EFTPS to send in your federal payment quickly and painlessly. Most states also require a quarterly estimated tax payment, so visit your state’s department of revenue or other taxing authority to find out if you can pay them online, too.
How Can QET’s Be My Friend?
After all that mess, how could any of this possibly benefit you and your business? Well, for one, you now have an organizational system in place for all your paperwork. This way you can not only find everything you need quickly, but can also use the collective data to get a better look at your business.
On top of that, you also have a heads-up on taxes due in April. Most taxpayers only deal with taxes once a year so they’re caught off guard when it’s time to figure everything out. You, on the other hand, deal with taxes all year, so you should be good and ready when springtime hits!
Do you have questions about quarterly estimated taxes? Let us know in the comments!