Why Timely Estimates Are Important
June 15th is the deadline to pay your second quarter estimated tax payment. As stated by IRS guidelines, estimated tax payments should be paid when you receive income that isn’t subject to withholding.
Although having to pay estimated taxes four times a year may seem like an annoyance, it is imperative that you project your quarterly payments promptly. By accurately estimating your taxes, you can significantly soften your tax burden when tax season comes around.
Who Should Pay Estimated Tax Payments?
Per IRS guidelines, estimated tax payments should be paid when you receive income that isn’t subject to withholding, which is the case for businesses such as law firms.
Estimating tax payments can be tricky, as law firms often receive an uneven cash-flow of taxable income throughout the year. For example, some law firms may see lower profits in the first couple of quarters and significantly higher earnings in the other quarters.
When Are The Deadlines For Estimated Tax Payments?
Logic may lead you to assume that the term “quarterly” payment means that estimated tax payments should be made every three months. However, you should note that the due dates for your quarterly estimated tax payments are actually January 15th, April 15th, June 15th, and September 15th.
As long as you remit the amount owed to the IRS, either electronically or by mail, by the expected due date, it is considered to be submitted on time.
Why Is It Important To Accurately Estimate Your Quarterly Taxes?
It is crucial that your firm accurately estimates the amount to remit for each of the quarterly payment due dates, because if you fail to pay in the required amount, the IRS may impose estimate tax payment penalties and applicable interest.
Don't worry though — Uncle Sam understands that tax estimates are not an exact science, so as long as your total payments to the IRS are at least 90 percent of the current year's tax liability, you will not be subject to underpayment estimated tax penalties.
How to Calculate Estimated Quarterly Tax Payments
Knowing whether you are expected to pay quarterly taxes or not is actually the easy part. The troublesome part is working out how much you will owe at the end of each quarter.
A good starting point for your first step is to estimate your expected gross income, as well as your taxable income, minus any allowed deductions and credits for the tax applicable tax year. A good rule of thumb is to estimate your expected payments according to your previous year's income and deductions plus credits.
Once you have an idea of these estimated figures, you can consult the IRS’ Estimated Tax Worksheet. This is found in Form 1120-W for corporations and will ensure that you have all of the information you need to guide you through your estimated tax payments.
The Bottom Line
Put simply, no business should leave it until the last minute to think about their taxes. It is essential that your law firm utilizes the services of bookkeepers and an accountant who understands the nuances of the profession, and is able to work with you throughout the tax year to ensure that you are paying as much tax as you need to — and no more.
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