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Entrepreneurs who have been in business for longer than a day know just how big a role taxes play in your business life. Whether you’re calculating sales tax or filing annual taxes in April, government agencies have their hands out waiting for your payment. It can get to a point where all you do is punch numbers into a calculator!
One of the most frequent taxes you’ll deal with as a business owner is the Quarterly Estimated Tax, or QET. These tax payments come every quarter and can quickly spiral out of control if you don’t have a handle on your finances. It doesn’t help that many entrepreneurs don’t even know what QETs are in the first place!
Let’s take a look at what these taxes are and how you can take care of them in no time flat.
What are Quarterly Estimated Taxes?
When you work at a salary or wage job you regularly have money come out of your paychecks. This money goes to taxes your employer sends in to various government agencies in a lump sum from all employees. It’s simple for you since the only thing you had to do was fill out an initial form for how much to take out each paycheck.
Now, though, things are nowhere near that simple for you. There’s no employer to take care of this for you since you’re now your own boss. Plus, sending in taxes as an entrepreneur or freelancer is much more complicated than filling out a form.
For one, there’s no monthly, weekly, or bi-weekly paychecks coming to you. You get paid when your clients or customers send you money. So there had to be some sort of designated periods to send in taxes, and that’s where QETs come in. Every quarter you calculate how much you owe to the IRS and send in a payment. This is why every few months you can see every small business owner and freelancer tearing their hair out.
What should you do about QETs?
Figuring out your QET payments is no simple manner…if you don’t have your finances in order. If you’ve already got a good system going, you probably won’t have as hard a time. So before you do anything, get all your papers in order and entered into Outright - receipts, invoices, every penny of income and expense associated with your business. Not only will this help with QETs it can also streamline your business as a whole.
After making sure everything is entered into Outright or another accounting system, you must calculate how much money you made over the taxable year. Outright Plus will do this for you automatically on the “Quarterly Estimated Taxes” tab.
If you do these calculations manually, remember these are quarterly payments so you have to divide by four. This number will be the first payment you send in. Keep in mind it may not be 100% accurate (that’s why they’re “estimated”). In April, you may end up owing a little more, or even receiving a refund if you estimated your tax debt too high.
As for sending in your federal payments, one of the easiest ways to do it is by signing up for the Electronic Federal Tax Payment System, or EFTPS. After you sign up you can log on and pay directly to the IRS so there’s no chance of anything getting lost in the mail. If your state requires QETs they may have a similar system in place – check their tax website to find out.
If you have more questions about Quarterly Estimated Taxes, check out Outright’s Online Seller’s Tax Guide for the lowdown on the various taxes online sellers have to deal with.