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Small business owners and con artists are facing a long tax term.
Architects who pay estimated taxes each quarter, including independent contractors and partners in commercial entities, owe their final payment by 2020 on January 15.
Generally, the other deadlines for quarterly taxpayers are April 15th, June 15th and September 15th.
Last year was an extraordinary one from a tax planning standpoint, as the Treasury Department and the IRS delayed the estimated due dates for the first and second quarter until July 15th.
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Normally, employees do not have to worry about quarterly payments. This is because their employers typically withhold income tax from their wages during the year.
Meanwhile, individual owners and other small businesses are responsible for paying their self-employment taxes and income taxes estimated four times a year.
“If you received income all year, the IRS will calculate the tax you should have owed quarter by quarter,” said Dina Pyron, global leader in TaxChat at Ernst & Young.
When you fail to meet your payments on time, underpayment penalties begin to occur.
Make accurate payments, avoid penalties
Generally, to avoid an underpayment penalty, you will have to pay at least 90% of the current year’s tax or 100% of the previous year’s return tax.
If your adjusted gross income on the previous year’s return exceeded $ 150,000, you will need to pay 110% of the tax due.
These estimates can be hindered by year-end surprises, including commissions and bonuses, which can inflate your revenue.
Small business owners and many other quarterly contributors faced an uphill battle in 2020, as they not only faced reduced income, but were still stuck with these quarterly payments.
Some entrepreneurs had to make difficult choices until 2020 to survive.
“If you have a business that is drastically affected by Covid-19, you are the sole owner and you owe quarterly estimates, you may have to choose between paying the estimate or keeping the money in the business,” said Dan Herron, CPA and director of Elemental Wealth Advisors in San Luis Obispo, California.
“You are on the hook for these quarterly payments, but let’s say your payment is $ 4,000,” he said. “What is the opportunity cost of $ 4,000, does that mean you will be in business for another month? That’s the choice.”