Quarterly Estimated Taxes: A Guide for Sole Proprietors

If you're a sole proprietor, you're responsible for complete control of your business, whether it is a part-time or a full-time venture. According to the IRS, that responsibility includes being personally liable for all financial obligations and debts of your business.

Because of this, sole proprietors are required to keep excellent records to meet the terms required for federal tax regulations. In addition, since sole proprietors do not have taxes withheld from their business income, they are required to pay quarterly estimated taxes.

Many new business owners are overly anxious about quarterly taxes, but as long as you get sound advice from a tax professional and play by the IRS's rules, you have nothing to worry about. Here are some of the most common questions people ask about estimated taxes.

Do I have to file taxes quarterly?

If you're a sole proprietor, the answer is most likely yes. The IRS expects self-employed individuals to pay federal income tax throughout the year, and if you don't pay estimated taxes each quarter, Uncle Sam can charge you interest and impose nonpayment penalties.

In general, you have to make estimated tax payments if you expect to owe at least $1,000 in taxes.

Which taxes do I have to pay?

You must pay self-employment and federal income tax. Self-employment tax is Social Security and Medicare tax for individuals who work for themselves. Ordinarily, employers and employees split Social Security tax, but when you're self-employed, you must pay the full tax yourself.

Before you can determine if you need to pay self-employment tax, you need to figure out your net profit or net loss from your business. Start by subtracting your business expenses from your business income; if there is any net profit, this becomes part of your income on your 1040 form. Likewise, if there is a net loss, you can claim that loss on your 1040.

How do I determine my payments?

Tax laws change frequently, but to figure out your estimated tax, you must estimate your adjusted gross income, taxable income, taxes, deductions, and credits for the year. See the IRS Form 1040-ES—Estimated Tax for Individuals to help you calculate what you should pay. Also, get some advice; a tax pro can help you assess what you owe, minimize your tax liabilities, and avoid costly missteps and underpayment penalties.

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When do I file my quarterly estimated taxes?

Check the IRS website for exact federal quarterly estimated tax deadlines. You can also find the dates by downloading Form 1040-ES.

Which tax forms do I use?

File quarterly taxes with IRS Form 1040-ES. You can download the form on the IRS website. However, the IRS prefers that you use the Electronic Federal Tax Payment System to pay online.

Where can I get more information about quarterly estimated taxes?

The IRS website has all the information you need. Visit the agency's Self-Employed Individuals Tax Center or call the helpline for businesses at 800-829-4933.