Business

Tomorrow may very well be the final probability for some folks to keep away from main tax penalties

Charday Penn | E + | Getty Images

Small business owners and side gig hustlers face a big tax deadline.

Applicants paying quarterly estimated taxes, including independent contractors and corporate partners, owe their final 2020 payment on January 15th.

Generally, the other deadlines for quarterly taxpayers are April 15th, June 15th, and September 15th.

The past year has been exceptional from a tax perspective as the Treasury and IRS have moved the due dates for the estimated payments in the first and second quarters to July 15.

More from Smart Tax Planning:
How unemployment could create a surprising tax burden in 2020
Crypto is losing value. What it means for taxes
People fled these high-tax countries in 2020

Usually, employees don’t have to worry about quarterly payments. This is because their employers typically withhold income tax from their salary during the year.

Meanwhile, sole proprietorships and other small businesses are responsible for paying their estimated self-employment and income taxes four times a year.

“If you have year-round income, the IRS calculates quarterly what taxes you should have owed,” said Dina Pyron, global tax chat leader at Ernst & Young.

If you miss your payments on time, you will incur underpayment penalties.

Make accurate payments, avoid penalties

In general, to avoid an underpayment penalty, you must pay at least 90% of tax for the current year or 100% of tax on your tax return for the previous year.

If your adjusted gross income from last year’s return exceeded $ 150,000, you must pay 110% of the tax liability.

Year-end surprises, including commissions and bonuses that can add to your income, can negate those estimates.

Small business owners and many other quarterly taxpayers faced an uphill battle in 2020 as not only did they struggle with falling incomes, but they were still hooked for those quarterly payments.

Some entrepreneurs had to make tough decisions by 2020 to get through.

“If you have a company that has been severely affected by Covid-19, are a sole proprietorship and owe quarterly estimates, you may have to choose between paying the estimate or keeping the cash,” said Dan Herron, CPA and director of Elemental Wealth Advisors in San Luis Obispo, California.

“They are hooked for these quarterly payments but say your payment is $ 4,000,” he said. “What is the opportunity cost for the $ 4,000? Does that mean you’ll stay in business for another month? That’s the choice.”

Leave your vote

0 points
Upvote Downvote

Related Articles

Check Also

Close

Log In

Forgot password?

Forgot password?

Enter your account data and we will send you a link to reset your password.

Your password reset link appears to be invalid or expired.

Log in

Privacy Policy

Add to Collection

No Collections

Here you'll find all collections you've created before.