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Thread: Estimated Taxes Question

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    Question Estimated Taxes Question

    Hi,
    Regarding quarterly estimated taxes, I've been told the most common thing is to pay 100% of the previous year's taxes to cover myself for this year. But what if the way the year is going I can see that I won't make as much as I did the previous year? Already in Sept and I'm not anywhere near what I made the previous year as I started a new business this year and it's in the growth stage.

    How would I handle this if I've already spent a good chunk in the first 2 quarters that 'may' be enough to cover taxes for my expected income this year...would I forego paying the last 2 quarters or pay everything as 100% of last year and get a refund next April?

    Appreciate any help!

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    It's ok t not make all 4 payments. When thinking about estimated payments, your goal is to pay enough to not owe anything come April. You can't know in advance how much you'll actually earn so you have to estimate it. The IRS instructions and the general advice you'll receive from people are to help you with that estimate.

    However, after you've filled out your taxes for a couple of years, you get a sense for how much you'll owe in April. If you're confident you won't need to pay more in taxes than you've already sent in, you can skip the last two payments. You can also skip this next one and if business improves, make it up with your January payment. You can also make both payments and either get a refund in April or leave any money with the IRS and call it your first estimated payment of 2018.

    Once your business is established the IRS wants you to pay at least a certain amount based on the previous year, but if your starting a new business that shouldn't be an issue.
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    Quote Originally Posted by vangogh View Post
    It's ok t not make all 4 payments. When thinking about estimated payments, your goal is to pay enough to not owe anything come April. You can't know in advance how much you'll actually earn so you have to estimate it. The IRS instructions and the general advice you'll receive from people are to help you with that estimate.

    However, after you've filled out your taxes for a couple of years, you get a sense for how much you'll owe in April. If you're confident you won't need to pay more in taxes than you've already sent in, you can skip the last two payments. You can also skip this next one and if business improves, make it up with your January payment. You can also make both payments and either get a refund in April or leave any money with the IRS and call it your first estimated payment of 2018.

    Once your business is established the IRS wants you to pay at least a certain amount based on the previous year, but if your starting a new business that shouldn't be an issue.

    Thanks very much. I've been reading though, that you get a penalty when not sending in a payment each quarter though? In my case I've paid the first 2 quarters this year, but feel anything beyond what I've already paid might be unnecessary based on how this year's income is going.

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    You're not automatically penalized if you don't send a payment. It depends on how much money you earn and how much taxes you inevitably owe. I think your taxes have to be over a certain amount or within some percentage of last year's taxes. Don't hold me to either of those, but I'm pretty sure there are some specifics in regards to how much you owe in taxes before any penalty would kick in.

    If this is your first or second year in business and the reason you don't want to send in another estimated payment is because you won't be making enough money this year, I'm guessing you won't reach the amounts where you have to send in.

    I wouldn't take my opinion as the gospel. At the very least grab the instructions for the estimated tax forms and see what the specifics are. You can also call the IRS and ask them. I haven't had to call them a lot over the years, but whenever I have, they've also been both nice and helpful.
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    If you pay enough in taxes AND you pay early enough, there is no penalty for not making payments in all four quarters. Paying 100% of the most recent years taxes is simply one of the safe harbor rules if there ends up being an underpayment. If you have not made equal quarterly payments and paid the full amount, you need to fill out Form 2210 to find out if a penalty is due.

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