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Small business owners and side concert agencies face a major tax deadline.
The quarterly tax payers, including independent contractors and business partners, owe their final payment from 2020 on 15 January.
Generally, the other deadlines for quarterly taxpayers are April 15, June 15 and September 15.
Last year was an extraordinary one from the perspective of fiscal planning, as the Treasury Department and the IRS delayed the due dates for payments estimated in the first and second quarters until July 15.
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Employees do not normally have to worry about quarterly payments. This is because their employers typically withhold income taxes from their salaries during the year.
Meanwhile, sole proprietors and other small businesses are responsible for paying their own taxes and income taxes four times a year.
“If you get revenue all year, the IRS will calculate what tax you should have owed quarter to quarter,” said Dina Pyron, global TaxChat leader at Ernst & Young.
When you do not make your payments on time, insufficient payment penalties begin to accrue.
Make fair payments, avoid penalties
In general, to avoid an underpayment penalty, you’ll need to pay at least 90% of the tax for the current year or 100% of the tax on your return for the previous year.
If the adjusted gross income in the previous year exceeded $ 150,000, then you will have to pay 110% of the tax debt.
These estimates can be dismissed by year-end surprises, including commissions and bonuses, which can inflate your income.
Small business owners and many other quarterly taxpayers faced an upward battle in 2020, as they not only faced declining incomes, but were still on the hook for those quarterly payments.
Some entrepreneurs have had to make difficult choices by 2020 to succeed.
“If you have a business severely affected by Covid-19 and you are the sole owner and owe quarterly estimates, you may have to choose between paying the estimate or keeping the cash in the business,” said Dan Herron, CPA and director of Elemental Wealth Advisors in San Luis Obispo, California.
“You’re in for those quarterly payments soon, but you say your pay is $ 4,000,” he said. “What is the opportunity cost of the $ 4,000, does that mean you stay in business for another month? That’s the choice.”