How To File Quarterly Taxes In 2020?
by Mashum Mollah Finance 05 December 2020
Paying Quarterly Taxes applies to a category of people, that do not get that tax deducted in the form of personal income taxes by their offices. This means that if you are self-employed or a freelancer, you need to pay quarterly taxes.
As someone who is self-employed, you have to look after your business, find clients, and keep finding new markets for your products or services. However, filing taxes should be an important part of your business operations.
In this article, we speak to leading taxation experts and ask them about quarterly taxes. In addition, we help business owners and those that are self-employed understand how they will be able to file quarterly taxes in 2020.
Quarterly Estimated Taxes: What are they?
The United States government, like many other countries around the world, follows a pay as you earn model of taxation. In simple words, it means that you should be paying taxes for each month you make an earning.
While this is something, which is easier to maintain for salaried professionals, the same becomes complicated in the case of self-employed businessmen or freelancers.
If you are earning a salary, your company deducts a certain percentage of your income every month, which is then paid as your income tax. This does not involve a lot of hassles and the company accountant or tax team helps you get everything done.
However, people who are running businesses need to follow the quarterly tax model. They need to estimate their income for the coming months and then pay accordingly. This might be easy if you have regular clients and income month-on-month.
The following are certain categories of individuals who should pay quarterly taxes in 2020-
- Sole Proprietors
- Property Owners (Rental Income)
In order to qualify for exemptions means that your total taxable income needs to be $0 USD. This is impossible unless you do not have any earnings or are a household.
How to Calculate your Quarterly Taxes?
If you are someone who belongs to the above five categories, you would have figured out that you need to pay quarterly taxes. In this section, we are going to help you calculate the same.
- According to leading taxation experts, it is important that self-employed businessmen estimate their total earnings for the year. This will help them arrive at the taxable amount. For example, if you believe that the outstanding tax payable at the end of the year is going to be $20000 USD, you need to divide the same into four installments. This means that for every quarter, you should be making a tax payment of $5000 USD.
- You can also check for how much you have already earned and then make a calculation. Experts suggest that this is good for businesses, which do not have regular income throughout the year. The IRS can help you find the exact figures through its worksheets.
- Experts state that the 1040-ES Form given by the IRS needs to be used to calculate the tax you owe as a liability. If you feel this is all getting a bit too much, fret not, there are multiple ways you can try for help.
You can use a good tax calculator software to help you, or you can even contact the IRS themselves to guide you on the process.
Here is how you can pay your Quarterly Taxes
The government and the IRS have made it a point to ensure that the payment process is simple and easy enough for everyone to understand.
You get the option of physically mailing in your taxes to the IRS with Form 1040-ES along with the cheque.
Or, you can also pay it digitally, by just simply logging in to the IRS Direct Pay Taxation System. Credit card payments are also accepted, but they carry a small 2% fee.
In addition to the IRS, the US Treasury Department also gives you a portal to file your taxes. The entire process is simple, non-cumbersome, and hardly takes a few minutes of your time.
Are there any Penalties for those Evading paying Quarterly Taxes?
It is important for businessmen to understand that not paying quarterly taxes can make them eligible for penalties. Even if you are paying late, the IRS can charge you a certain percentage of the tax amount as interest and add it to the penalty.
It does not matter if you are eligible for a tax refund after the final calculation. If you miss quarterly payments, you will be fined.
According to the IRS, exemptions are possible but only subject to very stringent regulations. If a self-employed person has been a victim of a natural disaster or has himself or herself been injured in unnatural ways, you can seek exemptions.
The IRS also exempts those that are senior citizens (above the age of 62) and are retired or suffer from some disability. It interprets such cases as failure to pay because of a reasonable cause.
The Final Word
Paying quarterly taxes is important if you do not want to get into trouble with the IRS. If you have a salaried spouse, you can ask her employer to deduct more taxes and then file tax returns cumulatively. If you wish to know more about quarterly taxes, please state your questions in the comments section below.