Have you received any income from which taxes were not withheld? If your answer to that question is ‘no,’ then you are not required to file estimated quarterly taxes (also known as Form 1040ES for individuals, and Form 1120-W for corporations) with the IRS. If you are unsure, or if your answer is ‘yes,’ this article will serve as a brief guide to help you determine what obligations you may have, and how to go about fulfilling them.
The IRS generally encourages individuals to file and pay estimated quarterly taxes if they anticipate owing at least $1,000 in income tax in a given year. This would be the case if you are a sole proprietor or partner in a limited liability company, or a shareholder in an S-corporation, for example. Corporations, generally, should file and pay if they anticipate owing $500 of income tax in a given year.
You can avoid paying estimated quarterly taxes by withholding some of your income throughout the year. That withholding must be greater than 90% of the amount of income tax estimated to be owed with your annual return, OR the amount withheld must be greater than or equal to 100% of the income tax amount you paid on your prior year return.
For example, if you calculate your total estimated taxes for the year to be $10,000, you must withhold at least $9,000 throughout the year to avoid the estimated tax filing requirement. Or, if your 2017 income tax liability was $10,000, you must withhold at least $10,000 to avoid the estimated tax filing requirement.
The IRS includes an Estimated Tax Worksheet with the Form 1040-ES (linked above) to help walk you through calculating your estimated tax obligations. Estimated taxes are calculated using a figure derived from your adjusted gross income, deductions, taxes, credits, and taxable income.
Typically, you will take this figure and divide by four, one for each estimated tax payment. However, if you anticipate heavier sales in one or two particular quarters, you might not make even estimated payments, but adjust one or more quarters to account for the increase in expected income.
The 2018 deadlines for filing your estimated quarterly taxes are as follows:
First quarterly payment due date: April 17, 2018
Second quarterly payment due date: June 15, 2018
Third quarterly payment due date: September 17, 2018
Fourth quarterly payment due date: January 15, 2019
You are allowed to make your fourth quarterly payment together with your annual income tax return.
Yes! You can pay estimated taxes online using the Electronic Federal Tax Payment System (EFTPS) or by mail (use this guide to find the right address based on where you live). Corporations are required to use the EFTPS (i.e. online) system to file estimated taxes.
If you have all of the information needed to make your calculations, filing and paying your estimated taxes will not take much time. Planning ahead by setting reminders throughout the year will help you avoid missing a deadline and incurring any penalties.