Estimated Tax Payments for Business Owners

As a small business owner, you should be paying quarterly estimated tax payments. However, with the Tax Cuts and Jobs Act, you may want to revisit those amounts this year. By checking what you are paying now, you may avoid an unexpected year-end tax bill next year and a possible penalty in the future.

The new law changed the way most taxpayers calculate their tax. Therefore, you may need to raise or lower the amount you pay each quarter. Remember the tax reform changes include:

• Increasing the child tax credit
• Increasing the standard deduction
• Limiting or discontinuing deductions
• New and revised business deductions
• Removing personal exemptions
• Revised tax rates and brackets

Utilizing Form 1040-ES can help you determine the correct amount to pay. You’ll find a quick rundown of key tax changes, income tax rate schedules for 2019, and a useful worksheet for figuring the amount of tax you need to pay.

Additionally, if you are among those who receive income as an employee along with self-employment income, then you may be able to avoid making estimated tax payments by increasing the amount of tax you currently withhold from your pay. Check out the Withholding Calculator on IRS.gov to perform a Paycheck Checkup.

Taxpayers with more complex situations might need to use Publication 505, Tax Withholding and Estimated Tax, instead.  This includes people who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependants, and people with capital gains or dividends.

Estimated Tax Penalty Relief

If you are one of the taxpayers whose 2019 federal income tax withholding and estimated tax payments fell short of your total tax liability for the year, then the IRS is waiving the estimated tax penalty. This relief was enacted to help taxpayers who were unable to properly adjust their withholding and estimated payments to reflect the myriad of changes that came with the new tax bill.

If you paid at least 85% of your total tax liability during the year through withholdings, quarterly estimated tax payments, or a combination of the two, you will not receive a penalty this year. The usual percentage threshold is 90% to avoid a penalty.