You work so hard and always end up owing a lot of taxes. This may help!

You are a freelance, small business owner, entrepreneur, sole proprietor or any other name by which we label the enterprising part of the working population that does not work for anyone else but themselves. For the purposes of this post, we shall refer to you as a small business owner – cuts down on typing time

You run yourself ragged, everyday, trying to market your business, pay the bills, keep rowdy employees in line, trim expenses  and try to make a profit. The lousy economy has battered and bruised business, but like the tough fighter you are, you have hung in thee – out of sheer will, desperation and hope that things will get better.

These days, you have way too much on your mind and are probably preparing to relax a bit (as much as you can, anyway) – especially since the tax season is almost at an end. Which is why I ALMOST feel bad about burdening you with two words – “Estimated Taxes”.

ESTIMATED TAXES

Estimated taxes are a little known but very useful money saving tax tip that most  small business owners know nothing about. Since you work for yourself, there is no employer that withdraws FICA, Medicare, Federal and State taxes from your income. Estimated taxes take care of that amount. You pay it periodically (weekly, monthly, quarterly, etc) during the year. Come tax time, this amount of money is places in the ‘taxes withheld’ row.

Estimated taxes ensure a few things:

A. You are not placed in a position where you are charged penalties for not paying taxes

B. You are not placed in a posiiton where you have to pay back a whole bunch of taxes at tax time

C. You are not planning budgets and projects with money that has to go to the government.

Some small business owners do not have to file estimated taxes, however, it is a safer option to pay estimated taxes. To figure out your estimated taxes, take a look at the form. When I first tried to use the form, I got confused and grossly underestimated my taxes – which led to me owing through the roof.  So, I generally try to pay 20% – and I pay twice a month. This way, I don’t feel it as much and if I pay too much, I can get a refund when I file my taxes. This may not work for everyone. You may actually succeed in using the estimated tax worksheet.

Too many small business owners get caught in the tax trap because they fail to pay estimated taxes. In my bookkeeping practice, this is something I preach to clients with a fervor. Please, make sure you pay estimated taxes!!

To find out more, head to the IRS website.

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