If you earn or receive money from a business, investments, alimony or even prizes, you are required to pay taxes on that income throughout the year, not just in April. Failure to pay on time can cost you big money in penalties and interest.
Wage and salary earners are accustomed to having their taxes withheld from their payroll. When your income is not exclusively through payroll, the responsibility falls directly on you to meet your tax obligations.
Does this mean you have to send the IRS a check every week or two? No. The IRS has set up a quarterly payment system where Q1 is due by April 15, just like the previous year's taxes, then following on 6/15, 9/15 and finally on 1/15 of the following year. If any due date falls on the weekend or a holiday, it's extended to the next business day.
The IRS preferred method is that you figure the total estimated tax for the whole year, and send four equal payments, following the previously mentioned schedule.
Have your CPA help you with the worksheet and Form 1040-ES to determine the correct quarterly amount.
You can pay by check along with the Form 1040-ES voucher, or you can file electronically using a credit card by enrolling in the Electronic Federal Tax Payment System, or using the IRS’ Direct Pay option.
Ignoring your estimated tax duties can lead to a tough time at the end of the tax year. It can be difficult enough, just paying the lump sum that you were supposed to pay throughout the year, but when the IRS tacks on penalties and interest, it's like adding insult to injury.
Tanya Higginbotham, a Certified Public Accountant, can help you with your estimated taxes and any other IRS issue you or your business are facing.