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Quarterly Estimated Taxes Due Dates, Calculation, and Late Payment Penalty

Quarterly Estimated Taxes Due Dates, Calculation, and Late Payment Penalty

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Quarterly Estimated Taxes Due Dates, Calculation, and Late Payment Penalty 1

As a small business owner, you have to make estimated tax payments to the Internal Revenue Service throughout the year (about once a quarter). This makes it easier to afford the taxes you owe rather than have a lump-sum balance due at tax time. As a business owner. I will share with you how I have been dealing with estimated taxes for the past 10+ years.

Estimated Taxes for Business

Not only is it important to satisfy your overall tax liability for each year as a self-employed individual or a business owner, but you want to pay enough taxes to avoid additional penalties on top of what you owe. Understanding the consequences of paying your estimated taxes late (or not at all) is important if you want to stay on the good side of the federal government and not go into debt with a huge tax bill after you file your taxes for the year.

Taxpayers must generally pay at least 90 percent of their taxes throughout the year through withholding, estimated tax payments or a combination of the two. If they don’t, they may owe an estimated tax penalty. — IRS.gov

Estimated Tax Payment Due Dates

Estimated tax payments are due about once a quarter (but not exactly). Here are the due dates for 2019

Payment Period Due Date
Q1 = January 1 – March 31 April 15
Q2 = April 1 – May 31 June 15
Q3 = June 1 – August 31 September 15
Q4 = September 1 – December 31 January 15 of the following year.

Some important notes

  • Q2 is based on only 2 months of taxable income
  • Q4 is based on 4 months of taxable income and due the following year

IMPORTANT: You will also have to make quarterly estimated tax payments for your state government — so be sure to check their specific rules by searching “[state name] + quarterly estimated taxes” — for example, “Virginia quarterly estimated taxes”.

How to Calculate Your Estimated Tax Payments

If you do not have a tax accountant preparing your taxes, there is an easy way to calculate your estimated tax payments. You can do this even if it is your first year in business and you can use the same method for both federal and state estimated taxes.

1. Calculate Your Effective Tax Rate

First, go look at your previous year tax return and look for these two amounts: Taxable Income and Total Tax. Your Effective Tax Rate is

Effective Tax Rate = Total Tax ÷ Taxable Income

For example,

Effective Tax Rate = $16,500 ÷ $100,000 = 16.5%

You can also you a simple tax calculator like this one at SmartAsset.

2. Calculate Your Taxable Income for the Period

Let’s say you’re trying to pay your Q1 estimated taxes, you need to add up all your taxable income that are not subject to withholding and subtract any expenses for the period of January 1st to March 31st. For example,

  • A = you work full time and made $10,000 in Q1 from your job
  • B = You have a side business that made $25,000 in Q1
  • C = Your side business costs $10,000 in expenses in Q1

You would calculate the Taxable Income for Estimated Taxes purpose as follow

Taxable Income = B – C = $25,000 – $10,000 = $15,000

Basically, your taxable income is your profit, or cash flow, for the period. Your full time income is ignored because you are already taxed at work.

3. Calculate Your Tax Owe

Tax owe for the period is simply calculated as follow

Tax Owe = Taxable Income x Effective Tax Rate = $15,000 x 16.5% = $2,475

You can repeat the same process for each quarterly payment and for the State calculation as well. This is a very simplified version but it has worked well for me over the past 10+ years I have been doing this.

Late Payment Penalty

The good news is that as long as you pay more than last year total taxes or at least 90% of what you owe, it’s hard to get penalized according to the IRS.

If you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.  — IRS.gov

Penalties is calculated using the IRS Form 2210. The basic equation is

Penalty = Total Underpayment for the Year x 0.03603

If you pay the tax you owe prior to April 15th income tax return due date, the IRS will reduce the penalty as follow

Penalty Reduction = Total Underpayment for the Year x Number of days paid before 4/15/19 × 0.00016

Bottom Line

As a business owner or a side hustler, it is easy to avoid paying tax penalty on your extra income as long as you keep up with the estimated payments. The process is easy enough to do it yourself, but if you’re unsure, consult a tax professional to help you with the calculations and payments.

Also, remember that you have to do this for both the IRS and your local tax authority.

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Suk-Youn Suh
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Suk-Youn Suh

I am a partner of 4 members LLC. Do I need to make estimate tax each quarter or can I wait until I recieve K-1 from LLC in January?

Nisa
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Nisa

I started my sole proprietor business in August of this year. I only profited about $30 for that month. I didn’t do my research well because I did not know about paying for estimated taxes until recently. I know I owe about $7 for that quarter. Will I get penalized? I am estimated to owe less than $1000 this year (according to GoDaddy Bookkeeping service). So will penalties be waived? Thank you!

Judith A Naeger
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Judith A Naeger

I pay a quarterly estimated tax of $1500 a quarter. Just realized I forgot to send in. Went online and processed my payment today 1-19-14. Do I owe a penalty? And if so how do I pay it?

Mary F.
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Mary F.

I’m not sure I paid enough for the first quarter. Now that I’ve received my tax refund, I’d like to send more, but would that tip off the IRS that I hadn’t paid enough the first time?

Richard and Marilynn Roessler
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Richard and Marilynn Roessler

I was hospitalized during the April 15 estimated tax due and neglected to send my check. I will mail it with my June 15, but would like to know the penalty so I can include it with the payment and the penalty at that time. Please advise.

Mike
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Mike

I just realized i missed the 15 June est tax payment. We only pay $469 per quarter. What happens if i mail it out tomorrow and they don’t receive it until next week?

nick
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nick

I missed my Sep 15, 2014 federal estimated tax payment for 2014 in amount of $1,700. can i still send it in a week later? will i be penalized for late payment? can i pay this online? need direction please.

Quarterly Estimated Taxes Due Dates, Calculation, and Late Payment Penalty

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