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Quarterly Estimated Tax Payments at MyBuilderCPA



Hello, Jon Markee here, founder and CEO of MyBuilderCPA. Today, I want to talk about tax planning with estimated taxes. Understanding and managing quarterly estimated tax payments is crucial for business owners who don't have taxes automatically withheld from their income.

What Are Estimated Taxes?

Estimated taxes are periodic payments made to the IRS and state tax agencies throughout the year, based on your expected income. These payments are necessary for business owners who don't have taxes withheld through a W-2 paycheck. This includes many small business owners, freelancers, and those with significant investment income.

Why Are Quarterly Estimated Payments Needed?

As a business owner, you must either pay 100% of your prior year's tax liability or 90% of your current year's tax liability to avoid penalties. If your income is consistent throughout the year, calculating quarterly payments is straightforward. However, if your income fluctuates due to seasonality or other factors, your payments will need to adjust accordingly.

Payment Deadlines

The deadlines for quarterly estimated tax payments are:

  1. First Quarter: April 15th

  2. Second Quarter: June 15th

  3. Third Quarter: September 15th

  4. Fourth Quarter: January 15th of the following year

These deadlines are not evenly spaced, adding to the complexity of managing these payments.

Service Levels and Payment Frequency

At MyBuilderCPA, the frequency with which we review and adjust your quarterly estimated tax payments depends on your service plan:

  • Tier 1 Pro Growth Plan: We revisit your estimated payments every quarter.

  • Other Plans: We ensure you meet the minimum required quarterly estimated payments for the year, providing guidance when preparing your income tax return.

We prefer setting up electronic payments to ensure timely and secure transactions. If you think you might change bank accounts during the year, we'll provide you with the necessary information to make electronic payments directly to the IRS and your state tax agency.

Adjusting Payments

Life events and changes in your financial situation can impact your quarterly estimated payments. Events such as a new side hustle, marriage, having a baby, or significant changes in business income should prompt a review of your estimated payments. Some clients prefer not to make quarterly payments, opting to use their cash flow for business operations and paying any penalties at tax time. While this is a valid strategy, we aim to help you avoid unexpected tax bills by keeping your payments accurate and up-to-date.

Importance of Timely Payments

It's crucial to make timely quarterly payments to avoid penalties and interest. If your service plan does not allow us to close and reconcile your books before the payment deadline, we will estimate the payment based on the most recent data available. It's better to make an approximate payment than to miss the deadline entirely.

Conclusion

Managing quarterly estimated tax payments can be complex, but at MyBuilderCPA, we aim to make it as straightforward as possible. By keeping your books up-to-date and revisiting your tax situation regularly, we help you avoid surprises and ensure you stay compliant with tax laws.

If you have any questions or need assistance with your quarterly estimated taxes, please schedule a tax meeting with me. Have a great day!

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