What Are Estimated Taxes? | Ep. 219

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Tiffany Grant: Where Tiffany's take where I answer your money questions. So recently I had a question come up. It was a business owner and they were like, oh my gosh, I'm having to. Taxes this year, um, and quite a bit. So what did I do wrong? What am I supposed to do throughout the year in order to make sure that this doesn't happen?

So that's gonna be the question I'm gonna answer today. So, if you are a business owner, please listen up because this could save you next year. Now, if you wanna get your questions answered on the podcast, just go to www. Money talk with t.com/tiffany and I'll be more than happy to answer it. So let's hop into it.

So one thing you can do to prevent owing so much taxes is, It's something called estimated taxes. So estimated taxes are payments made throughout the year to cover anticipated tax liability for income that is not subject to withholding. So what does that mean? That means if you're a business owner, you're a contractor.

Anything that. Doesn't require that an employer withhold your taxes for you. That means you, you're responsible for your taxes yourself. Then you may also be responsible for paying estimated taxes. So, uh, like I said, that includes income from self-employment interests, dividends, alimony, rent gains from the sales of assets, prizes, awards, the list goes on.

So you wanna make sure that if you get any of those throughout the year, you. Make sure that you're not liable for estimated taxes. Now, when are you liable for estimated taxes? Generally, you must make estimated tax payments if you expect to owe at least a thousand dollars in taxes after subtracting, withholding and refundable credit.

So after everything's all said and done, and you're still gonna owe more, or at least. A thousand dollars, then you are responsible for paying estimated taxes. Now, you also must pay estimated taxes. If you're withholding and refundable. Credits are expected to be less than the smaller of 90% of the tax shown on your current year's return, or a hundred percent of the tax shown on your prior year's return.

You may also be responsible for estimated taxes if you are a corporation. What does that mean? That means if you are, um, a corporation, and usually these are more like C Corp, um, but you know, sometimes s corp, LLCs and stuff like that as well. Just depends on how much you make. But, um, If this year, let's say you owe more than a thousand in taxes, then chances are you might wanna get with your tax professional and say, Hey, if this is gonna be the, the trend, which is great, that means you're making money, um, can you go ahead and calculate my estimated tax payments for next year so that way I can go ahead and pay them throughout the year and not be responsible during tax season?

So estimated tax payment. Are generally, um, supposed to be made quarterly, so in some cases your payment schedule may vary. So, like I said, definitely give it a tax person. They'll be your best friend in situations like this. But the due date for making those estimated tax payments typically falls on the 15th of the month following the end of each quarter.

So the first quarter is April. For second quarter is June 15th. For third quarter is September 15th, and for fourth quarter it is January 15th. And usually, um, you will get like estimate quarterly estimated taxes, um, uh, coupons that you can use. Uh, depends on what your tax person does, but uh, you would just send those in and with your payment, or I don't know if you can do it online now.

Feel like you should. Um, I should have looked that up before I started recording. But anyway, um, those are when you can generally make those payments. Now, why you might be asking Tiffany, why do I need to do this? Like, why is the government always in my pockets? Well, If you don't make estimated payments, you may be subject to penalties for underpayment of taxes.

These penalties are in addition to any regular income tax liability due. So the government's like, if you don't pay us throughout the year and you wait till the end of the year and you gonna owe more than a thousand dollars and you fit those categories like self-employed or what have you, then we're gonna penalize you because you should have did this throughout the year.

So it's, let's work on us now. But I feel like. Probably borrowed a reason. Um, so they don't have to, you know, do all of that at the last minute. So depending on the amount owed, these penalties can add up very quickly and should be avoided if at all possible. I know when I used to work at a company and ran the payroll, we would pay the estimated tax, we would pay the taxes, at least the, um, state taxes every week.

So every week we, we ran payroll, we would go ahead and pay the taxes on it. So on the website, There are different ways that you can pay these taxes, but the goal is to make sure that you pay enough, um, for that quarter. So making those timely estimated payments is important part of managing your taxes and ensuring you don't owe any more than what is necessary.

We wanna keep the government out of our pockets, so make sure that you get what a taxed professional if you did owe more than a thousand and you're self-employed so that way you can a, avoid this in the future. Also I wanted to talk about, um, how do you calculate the estimated tax payments? Because some people might be like, well, Tiffany, I'm new to this.

I usually do my taxes myself. Maybe you're in that situation like me. Or maybe you just like, I just wanna estimate before I talk to a tax professional. So I will say estimating taxes can be very complex and the exact amount can vary from taxpayer to taxpayer. So there's no one size fit all because we're all making all different types of money.

And so there's no way for me to give you just a, a. Good number to go off of. So it's important to make sure that you use an appropriate method when calculating your estimated taxes that takes into account your income in your deduction. So generally, the most accurate method is to use the I R S Estimated Tax worksheet, so you can find that on the IRS website.

Or a similar calculator to determine what your estimated tax payments are gonna be. I highly recommend sticking with what the I R s gives you, because you never know if, let's say you find an online calculator if they updated it or keep it up to date. And so going straight from the i r S website is. The best bet.

Okay? And if you have a tax person, that's probably what they're doing as well, should be what they're doing. But when you're calculating your estimated taxes, and this is why it's important to use a worksheet or a calculator, it's important to remember that you may also be able to claim certain credits, which can reduce your tax liability, meaning that you don't have to send so much in.

So for example, you may be eligible for the earned income tax credit or the child tax credit, or, um, you. Deductions, what have you. So it's very unique to your situation, you know, and your deductions. They can include like business expenses, medical and dental expenses, charitable contributions, home office expenses, the list goes on.

So, like I said, it is best to just use a calculator so that way you know exactly how much you need to do or get with a tax profess. This is not advice. Um, this is just for educational purposes cuz I don't want y'all coming to Tiffany like, oh Tiff, you told me that I could just do this, that and the other and I would be okay with the i r s.

No, that's not what I'm saying. What I'm saying. Saying is, make sure you're educated on what this stuff is, so you won't be in trouble with the I R S and use the appropriate resources available to you, i e, the I R S website, or a tax professional to make the best tax decisions for you, your business, and your family.

So with that being said, I hope that covered. Everything you wanted to know or didn't wanna know about estimated taxes, but it's super important that you know this stuff so that way you won't get caught slipping. So thank you so much for joining me on another episode of Tiffany's Take. You can catch these every Tuesday.

Um, and if you want your question answered, go to money Talk with t.com/tiffany, and I'll be more than happy to answer for you. But until next time. Peace.

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