Understanding Estimated Tax Payments: A Guide for Digital Creators

What are Estimated Tax Payments?

Unlike employees who have taxes withheld from their regular paychecks, as self-employed creators, taxes are not automatically withheld from the income that you earn from your business. But the IRS still wants their share of taxes on that income, and they don’t want to wait until the end of the tax year to get it! If you expect to owe $1,000 or more in taxes (self-employment and income taxes) for the year, after subtracting withholding and refundable credits, you are generally required to make these payments each quarter!

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Why Do You Need to Pay Estimated Taxes?

Paying estimated quarterly taxes is essential for a few reasons:

Avoid Penalties: If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty.

Cash Flow Management: Quarterly payments help you manage cash flow better by spreading your tax burden throughout the year rather than facing a large tax bill in April.

Stay Compliant: Regular payments keep you compliant with IRS regulations, avoiding potential legal issues.

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How to Calculate Estimated Quarterly Taxes

 You could either:

• Pay the same amount in tax that you paid the previous year
• Calculate estimates based on what your current taxable income is expected to be, which includes a few steps outlined below:

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Estimate your Annual Income - Forecast your income for the year, including all sources of revenue.

Calculate You Expected Taxable Income- Subtract your business expenses and deductions from your gross income to find your taxable income.

Determine Your Tax Liability - Use the current IRS tax brackets to estimate your total tax liability.

Account for Credits and other Taxes - Subtract any tax credits and add any additional taxes you may owe (like self-employment tax).

Divide by Four - Split your estimated annual tax liability into four equal payments.

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What happens if you don’t pay enough in estimated tax during the year?

Well, you’ll have to pay an underpayment penalty when you file your annual income tax return. Not good!

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When to Pay Estimated Quarterly Taxes

The IRS has set specific deadlines for estimated tax payments:

1. First Quarter: April 15
2. Second Quarter: June 15
3. Third Quarter: September 15
4. Fourth Quarter: January 15 of the following year

If a due date falls on a weekend or holiday, the payment is due the next business day.

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How to Pay Estimated Quarterly Taxes

You can pay your estimated taxes in several ways:

·      Online Payment: Use the IRS Direct Pay or the Electronic Federal Tax Payment System (EFTPS) for direct transfers from your bank account.

·      Credit or Debit Card: Pay online or by phone using a creditor debit card, though there may be a processing fee.

·      Check or Money order: Mail your payment with Form 1040-ESto the IRS.

·      IRS Mobile App: Use the IRS2Go app for payments.

‍Tips for Managing Estimated Quarterly Taxes

Keep Accurate Records: Maintain detailed records of your income and expenses to make accurate estimates

Use Tax Software: Consider using a tax software to help calculate and track your estimated tax payments.

Consult a Professional: An accountant or tax advisor can provide valuable guidance and ensure you are making accurate payments.

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‍Conclusion

Estimated quarterly tax payments are a crucial part of managing your finances as a content creator. By understanding what they are, why they’re important, how to calculate them, and when and how to pay them, you can stay on top of your tax obligations and avoid any unnecessary penalties. We know it can feel overwhelming, so if you need help navigating estimated tax payments or other tax-related issues, Myacco is here to assist you. Reach out to us for personalized advice and support today!

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