Do I Really Need to File Quarterly Taxes? What If I Didn't Make That Much Money?
The only way to know for sure is to run the calculation. I recommend getting a handle on this, right from the start!
I received the following, fantastic question from a member of my community, which I answer in the first video below...
"I am in the beginning, planning stages of my business and I have no idea how to estimate sales! I'm selling products (garments) and cannot predict for my first year of business what my income will be, do I need to file quarterly taxes for my first year of business?" Rachel Walters, who you can find at: rachel-walters.com
The short answer is to only record income for the actual sales you've had during the current quarter. So, if it's 3rd quarter and you haven't had a sale, estimated income is 0, or whatever your actual sales have been. The IRS has an alternative method for calculating your estimated taxes for people who don't earn income evenly throughout the year, which affects most small business owners. The alternative is simple however, just record what you've earned in the calculation.
How Is Your Relationship With Money?
Running your taxes each quarter, is a fantastic way to stay on top of and KNOW your $$$$. This builds a relationship between you and your money. I'll be honest with you, most people I meet and learn from who are successful; knew their money like the back of their hand and they always attribute that to their success.
Remember, MONEY IS JUST A TOOL.
It's the tool of our economic system that allows us to work for ourselves, create a business and earn more than we could imagine at a job. So don't bring dread and avoidance to your money. MASTER YO' MONEY. And I'm here to help you do just that!
Avoiding The Penalty For NOT Paying Quarterly Taxes (The Requirements to File Follow the Penalty)
One thing I want to address before we go further is the basics of the penalty calculation, which is what determines if you need to file each quarter; if you'll be charge a penalty, than you must file, but if you won't be than you don't need to file.
- First, you get to subtract all true business expenses from the income you receive during the year. Expenses that are part personal and part business, leave out of this calculation (home office deduction, mileage, meals & entertainment).
- Second, as long as you pay in full the taxes in total that you paid last year, there's no penalty. Look at Form 1040 Line 44 for last year.
- Third, you receive a standard deduction and personal and dependency deductions, so if your total income is less than these amounts; you don't need to worry about estimated taxes!
- Single Person: Standard Deduction $6,300 + Personal Exemption $4,050 = $10,350
- Married + 2 Kids: Standard Deduction $12,600 + Personal Exemption $8,100 + Dependency Deductions $8,100 = $28,800
- Fourth, as long as you owe less than $1,000 in tax, you don't have a penalty.
If your income is below the total of your deductions, you most likely don't need to worry about a penalty for estimated taxes ("most likely"! :) )
What Are Quarterly Taxes? When Are They Do? And How Do I Follow The Rules & Pay Them?!?
In the video, I answer the three questions above. You can skip the intro and get started at 2:19.