Small business Taxes - What Are quarterly Estimated Tax Payments and Why Must You Pay Them?

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If you are a sole proprietor, a self-employed man or an independent contractor, you are faced with the probability of development federal quarterly estimated tax payments.

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These are called "quarterly" payments, but don't that word fool you. In typically confusing Irs jargon, here are the due dates:

1st Quarter cost is due April 15. (So far, so good. The first quarter corresponds with the calendar quarter.)

2nd Quarter cost is due June 15. (Confused? You should be, because the 2nd quarter, for purposes of these estimated tax payments, is only 2 months long - April and May.)

3rd Quarter cost is due September 15. (Please stick with me here. The 3rd quarter is the months of June, July and August. But hey, at least it's three months long.)

4th Quarter cost is due January 15. (The 4th quarter is four months long. Don't ask me why. Maybe it has something to do with the 2nd quarter only being two months long?)

You make these quarterly payments electronically via Eftps (the Irs Electronic Federal Tax cost System) or by mail with Form 1040-Es. The current version of the form is ready at the Irs website, along with detailed instructions on how to fill it out.

Perhaps you are wondering, "Why do I have to make these quarterly payments? Why can't I just wait until the end of the year and pay the tax all at once, when I know exactly how much I've made and how much tax I owe?"

Good questions. Let's take a crack at some answers.

You can't wait until the end of the year to pay your tax for the same imagine that an employee isn't allowed to wait until the end of the year to pay his/her tax. Our federal earnings tax ideas is a "pay-as-you-go" system. The law requires employers to withhold tax from every employee paycheck. Likewise, self-employed habitancy must pay in while the year, and in it's infinite wisdom, the government has decided that development four payments is often enough.

And when you think about it, paying four times while the year is more practical than waiting until the end of the year. How many habitancy would have the self-discipline to put aside sufficient to cover their taxes? Wouldn't many habitancy spend it all and have exiguous or nothing left to pay the tax when the year is over?

So the quarterly estimated tax cost system, while far from perfect, does make sense, both for the government and for the self-employed taxpayer. Most states have similar rules regarding estimated tax payments, so be sure to check with your state's earnings tax division for details on their requirements.

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