If you are a small business owner or are considered to be a self-employed contractor, you likely earn income that is not subject to withholding.
If you expect to owe over $1,000 at the end of the year, the IRS expects you to make estimated tax payments each quarter. Under normal circumstances, quarterly estimated tax payments would be due April 15, June 15, and September 15 of the current year, with the final payment due on January 15 of the following year.
This isn’t necessarily a bad thing – for one thing, it helps prevent “sticker-shock” at the end of the year. Let’s say you had a better year than expected and wind up owing $10,000 to the IRS at the end of the year – if you had made quarterly payments throughout the year of $2,500 or more, including the final one due January 15, you would be paid in full and not need to worry about writing a final check. As a bonus, if you had overpaid each quarter, you would be entitled to a refund. Usually, I find that savvy business owners send SOMETHING in on a quarterly basis, and are prepared to write a check for the balance at tax time.
In some (most) cases, if taxpayers haven’t paid enough throughout the year, they could (will) have a penalty assessed for underpayment.
If you have any questions about your individual situation, feel free to take advantage of our free phone consultation, or you can get more information about Quarterly Estimated Tax Payments by taking a look at IRS Publication 505, which can be found here…
And here is an IRS video that talks a little about it: