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How to estimate those quarterly business tax payments to the IRS

Any sole proprietor who's been in business for any length of time knows these dates by heart -- April 15, June 15, Sept. 15 and Jan. 15.

The days aren't marked on the calendar with smiley faces. They're the due dates for quarterly income taxes.

The Internal Revenue Service expects business owners to cough up payments throughout the year on the "pay as you earn" system. But those who are new to business can find themselves in hot water come tax time because taxes aren't withheld from this kind of income the way they are from regular wages.

This tax tip helps business owners determine whether they need to make estimated tax payments, reminds them when these payments are due and provides options for paying.

To estimate or not to estimate
All but the smallest businesses must estimate their payments.

Sole proprietorships, partners, and S corporation shareholders should make estimated tax payments if they expect to owe at least $1,000 on their annual returns. They should use Form 1040-ES, Estimated Tax for Individuals when they calculate and pay these taxes.

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Corporations should make estimated tax payments if they expect to owe at least $500 on their annual returns. They should use Form 1120-W, Estimated Tax for Corporations when they figure and pay these taxes. Note, however, that the corporate installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year: April, June, September and December.

This is slightly different from the individual estimated tax payment schedule, which pushes the fourth quarter payment into January of the next year. But corporations still get the same consideration if any due date falls on a Saturday, Sunday, or legal holiday: the payment deadline is due on the next regular business daytaxes.

Three payment options
Business owners can make estimated tax payments three ways:

  • Credit an overpayment on a return to the next year's estimated tax.
  • Send in a payment with a payment-voucher from Form 1040-ES.
  • Pay electronically using the Electronic Federal Tax Payment System (EFTPS).

Remember that the key to avoiding penalties is to pay just enough estimated tax by the due date of each payment period. The IRS divides the year into four payment periods, each with its own due date.

Taxpayers who miss a due date risk being penalized, even if the IRS owes them a refund when it's time to file tax returns. Listed below are payment periods and due dates for individual (and affected sole proprietorships, partnerships and S corp shareholders) estimated tax payments:

  • Payments from Jan. 1 through March 31 are due April 15.
  • Payments from April 1 through May 31 are due June 15.
  • Payments from June 1 through Aug. 31 are due Sept. 15.
  • Payments from Sept. 1 through Dec. 31 are due Jan. 15 of the following year.

Regardless of whether your small business must file on the individual estimated filing timetable or on the corporate deadlines, make sure you aren't late with your check to the IRS. You don't want to be among those taxpayers who use their refunds to pay late penalties to Uncle Sam, do you?


-- Updated April 16, 2002

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