Filing taxes for your first year in business can be tough.

It comes every year and there’s no getting around it – taxes. But, for small business owners, tax season can be met with an incredible amount of stress, anxiety, and frustration. Especially when it’s your first year in business.

That’s why it’s important to stay on top of your finances. Meaning, you should be calculating, filing, and paying your quarterly estimated tax amounts.

If you haven’t been doing so, and don’t know where to start, don’t fret. That’s why we’re here to help! We’ve outlined some helpful tips below.

Who Needs to Pay?

We hear a ton of questions from first-time business owners. The most common one being, “How will I know if I have to file?’ and, generally speaking, almost all small business owners need to.

If you intend to file as a sole proprietor, a partnership, S corporation, shareholder, or a self-employed individual and are expected to owe at least $1000 in taxes for the year (after subtracting your withholdings and credits) you meet the criteria.

Businesses that file as a corporation will need to pay if they expect to owe $500 (or more) in taxes for the year.

Who Doesn’t Need to Pay?

If you’re an employee, your employer will be responsible for withholding quarterly taxes on your behalf. Therefore, you don’t have to pay quarterly amounts.

And, if you don’t owe (or have to file taxes), were a US citizen and your tax season was 12 months long, you might also be exempt.

Keep in mind there are also rules specified for farmers, fisherman, household employers, higher-income makers, and non-residents. So, be sure to speak with a professional before filing.

Where to Begin

Calculating your estimated taxes is not as difficult as it sounds. Essentially you will need to figure out your total tax liability for the year. This includes things like self-employment tax, income tax, etc. and to divide the number by four (for each quarterly payment)

To help you with these amounts use the IRS’ Estimated Tax Worksheet which is Form 1040-ES for individuals and Form 1120-W for corporations.

  • Step 1 – Calculate Taxable Income

The first you need to do is estimate your income. Be sure to subtract any ‘above-the-line deductions’ to reach the adjusted gross income. Once you have the adjusted amount, subtract the ‘standard deduction’ (for single or household taxpayers) and self-employment tax. In turn, giving you your total estimated taxable income for the year.

  • Step 2 – Calculate Income Tax

Next is to take your adjusted gross income and multiply it by your income tax rate. This rate will be based on the 2021 tax bracket criteria set out by the IRS.

  • Step 3 – Calculate Self – Employment Tax

For self-employment tax, multiply your estimated total income by the self-employment tax rate which is currently 15.3% (a combination of Social Security Tax 12.4% and Medicare 2.9%)

  • Step 4 – Add and Divide by 4

Now, for the final step. Add your income tax and self-employment tax and divide it by 4.

Helpful Tips

As always, filing your taxes will be much simpler with the help of a financial professional. Like us at A.P Accounting & Tax Services. We strive on helping small businesses achieve financial success.

And, be sure to keep track of the quarterly dates to avoid any missed payments. These dates are April 15, June 15, September 15, and January 15 (of the following year). Otherwise, you incur penalties.

If you’d be interested in learning more, or knowing what services would benefit you, give us a call at 407-328-5001.

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