So, we made it through tax season! How did you do? Anything you hope to improve for 2017? If you found yourself with a giant bill at the end of the year, there may be a way to fix this. A common misstep small business owners make is not paying 1040-ES quarterly estimated income tax. A 1040-ES is the form that estimates your taxes due as an individual. Those who are self employed should be filing this form as it can help you avoid paying a lump sum every April and avoid the penalty fee that is associated with skipping quarterly payments.
According to the IRS: “Estimated tax is the method used to pay Social Security and Medicare taxes and income tax, because you do not have an employer withholding these taxes for you. Form 1040-ES, Estimated Tax for Individuals, is used to figure these taxes. Form 1040-ES contains a worksheet that is similar to Form 1040. You will need your prior year’s annual tax return in order to fill out Form 1040-ES.”
Your accountant should assist you in determining your 1040-ES payment, but they will need your previous returns to be based on accurate books. You need to have a good idea of your profits from last year and what you project the current year to look like. Another way you can see what to pay is to pull real-time Profit & Loss reports and see what your bottom-line, net profit was for the quarter and pay the percentage recommended by your CPA based on your net profit. Check out our blog post on Understanding Your Profit & Loss Statement to get a better idea of how your income is recorded.
Curious how having an accountant AND a bookkeeper can make the best of your finances? Check out our blog post on defining a bookkeeper and a CPA.