A Complete Guide to Tax Extensions and Estimated Payments for Business Owners
by Dylan Williamson | Mar 12, 2024 | Uncategorized | 0 Comments
Tax extensions and estimated payments play a crucial role in ensuring compliance and avoiding penalties for business owners. Here’s a few easy-to-follow steps to keep you on top of your game:
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Understanding Extensions and Estimated Payments: Extensions provide extra time for filing tax returns but do not extend payment deadlines. This means that taxes owed must still be paid by the original due date, typically April 15th for both federal and state taxes. Estimated tax payments, on the other hand, are quarterly payments made by self-employed individuals, partners in partnerships, and shareholders in S corporations to cover taxes on income not subject to withholding.
Calculating Estimated Tax Payments: Determining quarterly estimated tax payments involves careful calculation based on income projections. Two primary methods are commonly used:
90% Rule: Pay 90% of the current year’s total tax owed. If your income exceeds $150,000, multiply line 24 of your 1040 form by 110% and divide by four.
Previous Year’s Tax: Divide the previous year’s total tax owed by four. Adjustments can be made if income varies significantly during the year.
Quarterly Payment Due Dates for 2024: Mark your calendars for the following deadlines:
April 15th
June 15th
September 15th
January 15th, 2025
Making Payments via EFTPS.gov: Signing up for an account on EFTPS.gov is crucial for streamlined payment processes. You NEED to sign up for an account! This platform allows you to schedule, track, and manage tax payments conveniently. By ensuring timely payments through EFTPS.gov, you avoid potential penalties and maintain compliance with tax obligations.
Penalties for Failure to Pay and Failure to File: Failure to pay or underpaying taxes can result in penalties – but they are not NEARLY as significant as Failure to File penalties.
The failure to pay penalty is typically 0.5% of the unpaid tax amount per month, up to a maximum of 25% of the unpaid taxes. This is the penalty that you will pay if you don’t pay in the tax due on the deadline with your extension or prepared tax return.
Meanwhile, the failure to file penalty is 5% of the unpaid tax amount per month, also capped at 25% of the total unpaid taxes. This is the penalty you will pay if you don’t FILE your tax return and you owe tax.
Therefore, It’s essential to make accurate estimations and timely payments and file your tax returns to avoid these penalties.
Navigating tax extensions and estimated payments requires careful planning and adherence to deadlines. By understanding the calculations, due dates, and potential penalties, you, as a business owners can effectively manage your tax responsibilities. Remember, signing up for an EFTPS.gov account is a MUST toward ensuring seamless tax payment processes and maintaining compliance with tax laws.
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