Third Quarter Estimated Tax Payments are due by 09/15!
September 6, 2018
The majority of the business owners who operate either as a single member LLC (Schedule C) or S-corporation need to pay estimated tax payments in order to stay in compliance with the IRS. Third-quarter estimated tax payments are due by September 15th.
How are the quarterly tax payments calculated? The total tax liability amount is based on your last year tax liability adjusted by safe harbor rule. Meaning if your income is greater than $150,000, your current tax year liability will be 110% of your previous year tax liability; otherwise you just need to pay 100% of your tax liability from last year. Obviously the new year could be very different, and despite the fact that you made all required tax payments on time throughout the tax year, you might owe more or get a refund at the year end.
The total estimated tax liability is to be paid in four quarterly estimated tax payments. The first payment is due on April 15th, the second on June 15th, the third on September 15th, and the fourth one on January 15th next year.
If you have not filed your tax return by April 15th, you might have missed your first, or even the first two estimated tax payments. The solution could be either to pay more with the next payment voucher, or pay more with payroll withholdings (if you operate your business as an S-corporation and run payroll for yourself). IRS treats payroll taxes paid (Federal Income Tax Withholdings) as they were paid throughout the year in equal installments despite the fact that this might not be the case. This is why I always recommend to catch up on income tax withholdings by making extra tax payments with your paycheck.
If you operate your business as a sole proprietor, or single member LLC, your installment tax payments not only include income taxes but also FICA (self-employment taxes- Social security and Medicare). Your installment tax payment amounts will be more significant, and the only way to pay them would be to add more with your next estimated tax payment. However, if your business operates at profit of at least $40,000, I would suggest to see a CPA to discuss if S-corporation conversion of your business might be a good option for you. Net income from S-corporation is not subject to Self-Employment taxes; thus, generating substantial tax savings. There are rules you would need to follow, such as paying yourself a reasonable salary. CPAs can easily help you to navigate them.
If you have any questions, need help to convert your business into an S-corporation or calculate your estimated tax payments, please feel free to contact our firm at 1-800-5040-272(CPA).