[Next Estimated Tax Deadline: September 15]
There’s been a lot of movement in the small business space since COVID-19 has created unprecedented disruption since earlier this year. Many people were forced to rethink their careers or close up shop, while some found opportunity and opened up new businesses.
At Erock Tax, we’re seeing a number of newly self-employed clients hitting the ground running and, since the real estate market in Newburyport is still as hot as ever, many of our clients have turned to real estate investments as rental properties. In both of these situations, among others, calculating quarterly estimated taxes on earned income is a necessary part of avoiding any penalties and interest on that income.
If you’re a sole proprietor, freelancer, partner, or shareholder in an S Corp, you’re generally required to make estimated tax payments if you expect to owe $1,000 or more when you file your tax return. If you’re employed by someone and receive a W-2, you don’t need to worry about filing estimates, as taxes are already being withheld from your paycheck.
Self-employed individuals will want to calculate an estimate by reviewing last year’s return and making a projection of this year’s obligation. Figuring out your quarterly tax payments isn’t always easy, but it’s an important part of doing business. In order to avoid a penalty on underpayment, estimated taxes will need to be considered for the following income sources:
- self-employment income
- rental real estate income
- dividends from stock, interest on bonds, or other substantial investment income
- significant retirement income
- alimony income
- capital gains on the sale of a major asset
- income distributions from a partnership or S Corp
Remember to account for both state and federal taxes and for the need to pay your Social Security and Medicare taxes as well. You might consider opening up a savings account to fund for this purpose. A separate account will help you avoid taking a cash flow hit each quarter when estimated tax time comes around.
To figure out estimated tax owed, use Form 1040-ES and pay estimated taxes directly to the IRS. And while it seems like we just paid estimated taxes for Q1 and Q2 on July 15, it’s already time to look ahead to the Q3 estimated tax payment due to September 15 on income earned between June 1 – August 31.
We understand that there’s a lot going on in the world right now, so if we can help take something off of your plate, please let us know. We help clients year round streamline both their personal and small business financial situations. Contact us at the office at (781) 247-5569 or email kerry@erocktax.com to put together an estimated tax projection for you.
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About Stu: With more than 30 years of experience as a tax professional, Stu Steinberg brings a broad depth of knowledge to his work with his clients. Stu founded Erock Tax to help provide tax and financial planning strategies to individuals, families and small businesses and is passionate about empowering his clients through education about their money health. Stu is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.