When Is The Best Time To Pay Your Business Taxes?
Working as an independent contractor in Concord, NC, means you’re classified as a sole proprietorship by the IRS and are considered to be a small business based in North Carolina. You’re getting paid to do work without getting taxes taken out of your check along with enjoying the freedom that comes with working your own hours. But that income you earn is reported to the IRS and is something you have to pay taxes on at a higher rate than you would pay as a W-2 employee. That means you can wind up with a nasty tax bill by the time April 15th comes around. But you can avoid this if you pay quarterly taxes if it makes sense to do so. The key words here are “makes sense” as not everyone needs to file quarterly.
What Are Estimated Quarterly Tax Payments?
The IRS divides the tax year into four quarters for businesses and individuals to pay taxes on income that is not subject to withholding taxes. This is done for two reasons: to avoid being penalized and to prevent you from owing a large sum that’s difficult to pay come tax time. You have to use a formula to determine your annual income and break it down into fourths to calculate how much tax you pay every quarter. If you have uneven income throughout the year, it can be difficult to figure out how much to pay with this formula. A Charlotte, NC business accountant can be of invaluable assistance in this matter when it comes to figuring out how much you should pay.
What Triggers the Need to File Quarterly Payments?
The threshold for filing quarterly payments is $1,000 in taxes owed. In other words, if you generate enough income that you will owe at least $1,000 in taxes, you have to file quarterly. How will you know that you are going to reach the $1,000 threshold in earnings? It’s not always straightforward. If you’re a seasonal employee, you might not have employment for two out of four quarters. You have to estimate the amount of income you expect to make during those two quarters and submit the payments when they come due. The payments for each quarter is due after the quarter has finished which gives you the opportunity to see what you’ve earned and remit the amounts to the IRS.
What Happens if I Don’t File Quarterly Payments?
What happens depends on how much tax you owe. If you earned enough money to get over the $1,000 threshold and didn’t pay quarterly, you still have to pay those taxes come April 15th. You can reduce your overall tax liability by using Schedule C for deductions, but if you are over that threshold by the slightest amount, you are going to get penalized. You may have set aside money for your taxes, but the IRS will append a penalty that has to be paid no matter what. The best way to avoid paying a penalty is to work with a Charlotte, NC, business accountant who can advise you on how much and when you should make payments.
When You Can Skip Making Estimated Quarterly Payments
Not everyone earns a full-time living from being an independent contractor. They may do the occasional job on the side where they acknowledge they’ll receive a 1099 if they earn over $600 in one year, but aren’t being paid a significant sum of money. If that amount won’t increase throughout the year to raise the tax liability, or the taxes owed are nowhere near $1,000, then that individual can skip paying quarterly taxes. They have the option to do so if they don’t want to pay on April 15th of the following year, but they won’t incur a penalty for filing on that date, either.
Also, you want to check out 5 questions to ask a CPA during Tax time since it is already this time of year again.