As a self-employed professional or business owner, paying estimated taxes quarterly on your business income provides many benefits. When you earn money over the course of the year as a self-employed business owner, the government requires that you pay taxes, so that they can collect revenue from your earnings.
One of the best ways to pay taxes during the year is with quarterly taxes. When you pay estimated taxes or quarterly taxes, you will pay your tax liability every three months instead of just once at the end of the year.
Quarterly tax payments provide self-employed professionals, contractors, and small business owners with a number of benefits that will allow them to stay compliant with the tax laws and remain profitable. Let's take a closer look at why you should consider making quarterly estimated tax payments.
Pay Quarterly Taxes to Avoid Surprises at Tax Time
One of the benefits of paying quarterly taxes is to help you avoid surprises at tax time. If you don’t pay estimated taxes as a self-employed professional or business owner, you will likely be liable for a hefty tax bill that you might not be able to afford.
Along with a high tax bill, you can also be liable for penalties and interest as well as the alternative minimum tax. Therefore, it is important to make quarterly tax payments throughout the year so that you are not liable for any unexpected tax payments when your final annual income tax return is due.
Avoid Estimated Tax Penalty and Interest on Your Tax Return
Whenever you pay quarterly taxes on a regular basis, you will be able to avoid costly penalties and interest. Taxpayers who don’t pay estimated taxes put themselves in a position to be liable for these penalties if they don’t file and pay their taxes on time.
Paying estimated taxes throughout the year will enable self-employed individuals and small business owners to just focus on paying their taxes in small pieces instead of a lump sum when you file your annual tax return. Most importantly, you can potentially avoid any additional costs associated with their tax obligations.
Gain Better Understanding of Cash Flow with Quarterly Payments
As a freelancer, contractor, self-employed professional or business owner, it is important to understand your cash flow. Keeping an eye on tax liability and taxes you need to pay can help ensure profitability at all times.
One of the taxes that a self-employed professional and small business owner must pay is the self-employment tax. With the self-employment tax, you will need to pay about 8% each year for social security and Medicare.
At times, these taxes can be a costly obligation if it is not paid on a regular basis. Therefore, paying estimated taxes will help you pay off the self-employment tax and improve your awareness of your overall cash flow during the year.
Pay Quarterly Taxes to Keep Costs Low for Your Small Business
Another benefit of paying quarterly taxes is that it allows you to keep costs low. Yes, quarterly taxes are costly but penalties and interest are even more costly during the course of the year. As a result, it is important to pay these taxes so that you can help keep your overall costs lower.
If you don’t have to pay penalties and interest, you will just need to pay the original tax liability and ensure that you have more money to save as well as invest in your business. By paying taxes throughout the year, you can avoid penalties, improve profitability, and ensure future success for your business.
Get a Possible Tax Refund from the Federal Tax Payment System
Whenever you pay your quarterly taxes, you also have a good chance of getting a refund on your federal income taxes. When paying your quarterly taxes during the year, it's similar to having taxes withheld, and you may overpay just as if you were an employee.
As a result of withholding taxes, you can be eligible to receive money by tax time. If you pay these taxes during the year, you will meet your tax obligations; and if you overpay, you will be eligible to get some money back, which can help your financial situation. Again, a tax refund can allow you to spend some money on yourself or provide you with extra capital to invest in your business.
Manage Finances More Efficiently & Make More Intelligent Financial Decisions
Paying quarterly taxes allows you to manage your business and personal finances more efficiently while making smarter financial decisions. Since you make estimated payments every three months, you are making steady progress towards fulfilling your annual tax obligations.
These quarterly tax payments allow you to spread your tax liability out over the year. Making quarterly payments helps you set a budget each month and each quarter that can allow you to ensure that you avoid spending more money than you have. As a result of making quarterly tax payments, you are more likely to have a reserve for unexpected financial situations.
Contact John F. Dennehy for Help with Quarterly Payments
Savvy business owners, freelancers, and contractors don't wait until the tax day to make a payment, they do so throughout the year. Instead, they partner with experienced tax professionals for proactive tax planning strategies.
Fortunately, John F. Dennehy CPA can help with quarterly estimated tax payments. As the leading team of accountants in the area, we specialize in helping business owners plan for estimated taxes while reducing their tax liability. We offer tax planning, tax return preparation services, bookkeeping solutions, and more.
Contact us today to learn more about estimated tax payments, your quarterly payment, how to write-off business expenses, and more.