If you are a business owner, you have likely had the pleasure of being told by your accountant at one time or another that you need to (or at least should) send in estimated tax payments periodically (usually quarterly) for income taxes on your earnings. What are estimated tax payments? According to Investopedia, estimated tax is a periodic pre-payment based on the amount of income that is earned and the amount of estimated tax liability that will have been incurred as a result.
As an employee, income taxes are usually withheld by the employer and sent to the government on the employee’s behalf. For others, like the self-employed or landlords who earn rental income, the burden lies on them to make these estimated tax payments directly to the government. Investopedia goes on to say, “If the estimated taxes that are paid do not equal at least 90% of the taxpayer’s actual tax liability (or 100% or 110% of the taxpayer’s prior-year liability, depending on the level of adjusted gross income), then interest and penalties are assessed against the delinquent amount.”
The good news is that the federal government and the state of Wisconsin have made it very easy to make these payments by allowing you to pay your estimated taxes online. To pay your federal estimated taxes, simply visit www.irs.gov/etpay to pay via bank account, debit card or credit card. Corporations wishing to pay online must pay their estimated taxes through www.eftps.gov.
If you are subject to Wisconsin income tax, you can make your estimated payments via www.revenue.wi.gov. If you are a sole proprietor or single member LLC, you pay your tax under the Individuals menu option. Others can pay their estimated taxes through their MY tax account.
Estimated taxes are due:
- January 15
- April 15
- June 15
- September 15
If you aren’t sure if you are subject to estimated taxes, we recommend you check with your accountant.
We mentioned earlier that you have the option to pay your federal taxes via debit card or credit card. If you are doing so for the sake of receiving points or cash back on your credit card purchases and you have the funds to pay that off right away, by all means, take advantage of that; but, there are fees associated with those payment methods so be sure the benefit exceeds the cost of doing so.
If, however, you need to pay your estimated taxes using a credit card because you lack available funds, or, you find yourself not paying your estimated taxes because cash flow does not allow, you are not alone. According to an article posted by SCORE titled “Why 36 Percent of Entrepreneurs Aren’t Filing Taxes,” “a third of self-employed workers admit they’ve gotten behind on paying their taxes in the past, are currently behind on their taxes, or expect to be in the future.” If you are finding yourself in this position or have been in this position in the past, the time is now to take action and get your business back on track. One of the ways you can do this is to follow the methodology that Mike Michalowicz uses in his book Profit First.
In the early days of my business, I used to put off paying my estimated taxes because, although I had the money to pay them, I felt compelled to keep in my business checking account as a sort of cushion. Of course, this was not sound thinking since that money was not mine to spend, whether I needed it or not. As a result, I wound up paying late fees and penalties every year for not making my estimated tax payments online.
Then I read Profit First. Not only did Mike’s methodology make it possible for me to always have money available in a savings account to pay my estimated taxes, I also set aside my profit first in a separate savings account before spending any money. As a result I have been able to pay myself quarterly bonuses and have a growing savings account to fund future business growth and development. We found it to be so simple and successful, that we actually started teaching it to our clients and they have had fantastic results as well.
If you are ready to get your tax situation back on track, pick up or order yourself a copy of Profit First. You won’t be disappointed. And if reading isn’t your thing, we would be happy to show you how to implement the method in your business or you can visit https://www.profitfirstprofessionals.com/find-a-profit-first-professional/ to find a Profit First Professional that suits you and your business to help you get started today!