Everyone must pay taxes on the income they receive during the year. Most people with a regular job, have their taxes withheld from their paychecks, self-employed individuals pay what is called estimated taxes. It’s simply a method of paying taxes on income that is not subject to withholding tax. The IRS requires estimated tax to be paid quarterly. If you underpay your estimated tax, you will have to pay more when you file your tax return. If you over pay, you’ll receive a tax refund.
For the purpose of estimated tax, the year is divided into 4 payment periods. Each period has a specific payment deadline, and failing to pay on time can result in IRS penalties:
• January 1 — March 31: Deadline is April 15
• April 1 — May 31: Deadline is June 16
• June 1 — August 31: Deadline is September 15
Some individuals look at their income and numbers from the previous year to estimate how much they will pay each year, but to full determine the amount you will need to pay you must compile your income, deductions, credits, and paid taxes, as if you were filing a yearly tax return.
Something to think about for all the new entrepreneurs out there!