Everything You Need to Know About End-of-Year Taxes

December 29, 2020 Published by

The festive month of December not only marks the season of family gatherings, for entrepreneurs and self-employed professionals all over the country, it also signifies the start of the tax season. If you want to get ahead of these looming deadlines, here are some things you need to keep in mind:

What are estimated taxes? How can you figure them?

Estimated taxes can simply be thought of as the equivalent of withholding taxes to small business owners, contractors, freelancers and professionals who do not have taxes automatically withheld from their earnings. In most cases, the aforementioned individuals use Form 1040-ES to figure their estimated tax. This form will help you figure your expected adjusted gross income, taxable income, credits for the year, taxes, and deductions.

It would also be a good idea to use your income, deductions and credits for the prior year as a starting point. In the event that you mistakenly estimated your earnings a little too high or there are deductions you forgot to account for, you can simply complete another form to refigure your estimated tax for the next quarter.

When do you need to pay them? What are the estimated tax deadlines?

Estimated taxes are divided into four payment periods. However, since estimated taxes are only applicable to self-employed professionals and entrepreneurs, these taxes are expected to be paid after the first year of profitable business operations. According to the Internal Revenue Service, the estimated tax deadlines for the four different quarters are:

(1) January 1 to March 31 – April 15

(2) April 1 to May 31 – June 15

(3) June 1 to August 31 – September 15

(4) September 1 to December 31 – January 15 of the following year for personal taxes and December 15 of the current year for corporations.

Although there is a slim chance that this will vary, it could happen if your business’ fiscal year differs from the calendar year.

How can you pay for estimated taxes? How much are taxpayers required to pay in estimated taxes?

Estimated tax can be paid in many different ways. For instance, you can send estimated tax payments along with your filled up Form 1040-ES by mail. You can also pay online, by phone or through your smartphone via the IRS2Go app.

Following the options provided on IRS’ official website, taxpayer organizations can also enroll in the Electronic Federal Tax Payment System (EFTPS), which is considered to be the best option for businesses and large payments.To successfully enroll, all you’ll need is your Employer Identification Number, banking account number and routing number, and your address and name as they appear on your IRS tax documents. After enrolling online, you will then receive a password, which you can, later on, replace after you log into your EFTPS account for the first time. To make a payment, you can visit the official site provided by the IRS for EFTPS and select ‘Make a Payment’.

Ideally, estimated taxes are to be paid in full. Meaning to say, you have to pay 100% of last year’s tax liability or 90% of this year. However, given current circumstances, paying taxes in full could be quite a challenge to many. If you are one of those people, consider applying for a payment plan that includes an installment agreement. It would also be a good idea to phone in and find out if there is a way you can settle your tax debt for less than the full amount. If worse comes to worst, it would be better for you to request a temporary delay collection until your financial situation improves.

Don’t Stress About It.

CNN’s article on how to cope during the tax season explains how the pressure to file returns before a deadline, significantly adds to the stress American adults feel over money matters.

With the pandemic still looming over our heads, tax season stress is even worse than before. Yet there is a high chance that more Americans are now better equipped to deal with the tax season, and have stopped any bad financial habits from previous years. In fact, Dr. Erika Rasure, an assistant professor for Maryville University’s online business degrees, explains that the pandemic “is both a time of fear and lucrative opportunity where money is concerned. In a feature with Business Insider, she explains that Americans have now developed “a keen awareness of how much money you have, how much money you need, and what you can or cannot do with the money you have.” In line with Dr. Rasure’s prediction, many business owners will have likely improved their financial habits and processes and will be looking to get ahead of their taxes to save themselves from the financial and mental stress of last-minute tax computations and filings.

For more information we have lots of articles for different industries. Whether you are a small business or are looking for ‘Tax Deductions That Can Save Construction Businesses Money’, we have you covered.

Written exclusively for Codeaccounting.com
by Abby Miller

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This post was written by Abby Miller

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