About This Episode
We’ve talked about how to save for your taxes and how to do your taxes, so today we’re going one level deeper and talking about HOW to pay your quarterly taxes. We’re also diving into what to do if you’re behind in your tax payments or owe money on back taxes.
Plus, I’ve got some great tips on how you can create additional income to pay off or pay more towards your taxes without touching your current revenue stream.
It’s time to start preparing for your quarterly tax payment!
What we’re talking about
- How Do You Pay Quarterly Taxes?
- When Are Your Quarterly Taxes Due?
- How Do You Get Caught Up On Back Taxes?
- Tips & Strategies To Generate Additional Income
How Do You Pay Quarterly Taxes?
Before you pay your quarterly taxes, you need to know how much you should pay. There are two ways to know what that amount is. The first way is, if you have filed taxes in the past, calculating your estimated tax payments based on the previous tax year.
Usually, after filing your taxes, you’ll receive 1040ES payment slips/vouchers for the current year and you’ll send these in with your quarterly payments. These vouchers are often pre-filled with the amount you need to pay every quarter for your federal taxes.
The amount on the vouchers takes your total tax liability for the previous year and divides it by four. If you have a tax preparer, they sometimes will adjust the amounts based on your business projections for the current year.
The second way to know how much to pay on your quarterly taxes is to do real-time calculations, which can often be a better option for growing businesses. If your business has consistent revenue and profit year to year, then this isn’t necessary.
But, if your business experiences extreme growth, then using last year’s data would mean you would underpay your taxes. With the real-time method, you’re calculating your tax payments based on what you’re really earning in your business.
For the real-time method, the general rule of thumb is to pay 30% of your net income every quarter.
You have two options on how you make your payment. The first is to mail a check to the IRS along with the 1040ES vouchers. Or you can pay online using one of two online systems. The IRS Direct Pay site allows you to pay via a bank transfer for free or you can use a debit/credit card and pay additional fees.
The other online option is the EFTPS government site which requires a login, but also provides you flexibility and payment history viewing. You can also schedule your payments a year in advance.
When Are Your Quarterly Taxes Due?
Quarterly taxes are due quarterly or four times a year. The typical due dates are:
- April 15th (for the period of January 1 – March 31)
- June 15th (for the period of April 1 – May 31)
- September 15 (for the period of June 1 – August 31)
- January 15th (for the period of September 1 through December 31)
Due to COVID-19, the first and second quarterly tax payments for 2020 have been moved to July 15th.
How Do You Get Caught Up On Back Taxes?
If you need to get caught up on back taxes, or if you haven’t made quarterly payments towards your taxes, then you can make a large payment at the end of the year.
You also have the option to pay every month and you don’t only have to pay the minimum. If you have additional money that you can pay towards your tax debt, then make the payment!
Tips & Strategies To Generate Additional Income
If you are struggling to come up with the funds to pay your quarterly taxes or back taxes, then one strategy you can use is to pick up extra projects or work and utilize that income only for your tax payments. This ensures that your normal income isn’t affected.
Another option that I’ve seen work really well is to create a passive income product, such as a digital download. The revenue you generate passively can go directly to your tax payment and won’t impact your day to day cashflow.
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