Today’s post is a guest post brought to you by Outright.com, the easiest way to manage your small business finances online for a less taxing tax time!
Online selling can be tough enough without throwing in a monkey wrench. But of course those monkey wrenches are bound to come at some point. One wrench you can learn to dodge, though, is the quarterly estimated taxes you owe every few months.
But you can only dodge that wrench if you know what it is!
There is so much to contend with as an online seller, and if you’re new at the game it can even be a nightmare trying to get everything in order – especially your financial house. Make it easier on yourself (at least by a bit) by reading on for Outright’s handy guide to quarterly estimated taxes.
Quarterly “Estimated” Taxes
The important word here (besides quarterly and taxes of course) is “estimated.” This is why these taxes are different from regular taxes someone who works at a “regular job” pays. The United States income tax is a “pay as you go” tax. When a W-2 employee works a set number of hours, they get a set amount of taxes taken out to pay to the state and federal. There’s very minimal work involved for the W-2 employee in this situation. All he really has to do is sigh at the amount he sees taken out of every check.
But for online sellers it’s very different, and way more work. Your taxes aren’t automatically taken out of a paycheck, which means you need to pay them in yourself. And this is where the “estimated” part comes in.
Luckily it’s not the most complicated thing in the world, and if you’ve ever done taxes more complicated than a 1040EZ you should have an idea what to do. Basically you need to figure out how much money you’ve made during the year off of online selling. After that, you take your deductions and such into account to try and lower the payment. Once you’ve figured out what you owe in taxes for the year, divide by four and you’ve got your first installment. Of course, that’s where the estimated part comes in. If you’re an online seller, you may anticipate a huge holiday season, but how are you to know that here in June? Fortunately, if you pay in the same amount you owed in taxes last year, you won’t find yourself penalized at the end of the year. So if your federal tax liability was $1,000 in 2011, if you pay four quarterly installments of $2500, you will avoid IRS fees and penalties.
So how many times a year do you have to do all this mess? Since they’re “quarterly” payments, you’ll have to do these calculations four times a year. The first quarter isn’t in the beginning of the year; it’s actually in April, the same time when you’re filing and paying in your federal taxes. Here are the dates you’ll have to contend with as an online seller:
Quarter 2: June 15th
Quarter 3: September 17th
Quarter 4: January 15th, 2013
Then the whole shebang starts over in April when you pay in your taxes next year.
Sound like a lot of work? If you keep up a good filing system (including Outright to track your invoices and expenses) and make sure your paperwork doesn’t get out of hand. Keeping a constant idea of how much money you’ve made and how much needs to be taxed will make your quarterly estimated tax payments much easier to bear.
Does all this still sound like a humongous pain in the neck? You’re not alone. That’s why Outright estimates your federal quarterly estimated taxes owed. Import your bank accounts, PayPal, and credit cards into your free Outright account, then head over to the Taxes tab to check out what you owe. (Keep in mind we can’t predict your tax credits – such as childcare or the earned income credit – so our estimate will err on the side of paying more and keeping you out of trouble with the IRS.)