So every business and individual according to the IRS are required to pay taxes as we receive our income. I call this paying as you go. It is actually helpful in preparing for taxes at the beginning of year and for avoiding extra cost. The IRS says anyone who owe more than $1,000 in tax and has not paid taxes through out the year can be penalized and charged interest. Many of us forget, but it’s just like getting paid as an employee.
The employer negotiate your gross pay, you give permission to withholding tax, social security, medicare and you are paid the net amount. This is true for businesses as well. You are responsible to pay a 15.3% self employed tax ( social security and medicare) on the profit you make. That same profit is taxed for income at your personal tax bracket rate. Because you are your own boss, there is no one withholding any taxes, that is now your responsibility. You will withhold ( meaning don’t spend) and then submit the payment yourself. The IRS calls this an estimated tax payment.
So, If you will like to submit your quarterly taxes to the IRS it will be the best thing for you. Especially for those who find they owe the IRS a large amount of money at the beginning of the year. Look at it as a saving tool as well. Except the money isn’t sitting in your bank account, waiting for you to spend it. That’s a big mistake we make as well. We spend money that is owed to the state or federal government. As a business owner you have to take in account of the taxes due. I know you may feel it’s not fair and it’s your money but that’s just what it is!
Its better to pay now than to pay penalties later. So just to give you an example. If your tax liability is $5,000 at tax season and you found that it’s a lot to pay at once let me show you how paying as you go helps. The IRS requires you to pay estimated tax payments throughout the year. If you would at least pay the IRS $900 per quarter or $300 per month you would of paid $3,600 into your the $5,000 tax liability, leaving only $1,400 owed at tax time. Just always remember your profit has taxes due. So I hope this helps in your understanding in business taxes.
Now this is assuming you only have business profit and this gives you a basic idea. Everyone’s situation is different. Some people have multiple businesses, some have property’s, some people still have a 9 to 5 so your tax situation can vary depending on your personal situation
If you find it will be better for you to pay the IRS as you go click here , create an account to pay online and thank me later.
If you want more information or want to share your personal situation for more guidance click here to schedule a time for us to speak.