In just a few days on January 15th, a date all of us self-employed folks dread, our Quarterly tax payment is due the IRS. What I’ve come to appreciate about these quarterly payments is that I’m not writing a check to the IRS for my entire tax liability. Instead, I’m just writing a quarter of it. It’s like the old saying goes: How do you eat an elephant? One bite at a time. Quarterly payments are small bites of a big issue.
You’ll likely agree it’s painful to write any check to the IRS, but it’s more painful to get your tax return back from your accountant (or tax program like TurboTax) and see that you owe the entirety of your tax liability from the previous year. Thankfully I’ve not had that happen to me, but I have had to write some larger checks come tax time because I forgot to send in a quarterly payment or I didn’t pay enough. This is your friendly reminder to not forget. Set these dates on your calendar, and pay them on time.
The reason for quarterly payments is that we don’t have an employer that withholds a portion of our paycheck for tax purposes. I guess the IRS thinks that if you’re responsible enough to start your own business, you’re responsible enough to save and pay your taxes in 4 small chunks. Putting that money aside for the government is not an easy thing to do.
As I referenced in my post on Banking last week, I would suggest setting up a separate account for your taxes. This will help to keep that money aside from normal daily and monthly expenses. Because there is fluctuation in small business, it’s wise to talk with your accountant/CPA and get a dollar amount that is close to what you’ll need to pay.
I take my yearly expected tax liability and divide it by twelve. At the end of every month, I transfer “$x” (where “x” is the amount I need to save on a monthly basis) to my tax savings bank account. When it comes time to write my quarterly check, I have the money in my tax savings account. It’s not stressful to figure out where the money is coming from to pay the bill, though it is still painful.
The IRS doesn’t know how much/little you’re supposed to be contributing each quarter, so if you’re brand new to starting your business, pay the quarterly taxes with some amount. Paying something is better than paying nothing at all. You will get penalized when your taxes are due in April if you do not pay enough or if you’re late with the quarterly payment. The last thing you need is to be worried about a huge tax bill come April because you’ve not paid your quarterly taxes. This will be a big stress on you personally and professionally, and will impact your work as a clinician.
One last thing of note. In April you have to pay the quarterly taxes for the current year AND any outstanding balance you owe the IRS from the previous year. This can be a surprise if you’re not prepared to write two checks. Be sure to talk with your accountant/CPA if you have questions about your taxes, it’ll be well worth your time.
Important 2015 Tax planning dates:
January 15th – 4th Quarter 2014 estimated payment due.
April 15th – Individual tax return date for 2014. Extension filing deadline for 2014 taxes. 1st Quarter 2015 Estimated payment due.
June 15th – 2nd Quarter 2015 Estimated payment due.
September 15th – 3rd Quarter 2015 Estimated payment due.
January 15th, 2016 – 4th Quarter 2015 Estimated payment due.
Photo courtesy of Tax Credits via Flickr