Quarterly statements

[Jalabee]

What is the name of your state? CA

I started a business earlier this year, but have not paid any taxes yet on my income. I'm expecting a large tax bill at the end of this year, and am interested in making quarterly payments to reduce this tax burden.

Is it too late to start making quarterly payments for 2002? If not, how do I start them? Also, are quarterly statements only for federal income tax, or is there a separate one for social security?

Thanks,

Quarterly tax payments for 2002 are due on 4/15/02, 6/15/02, 9/15/02, and 01/15/03. These are also known as estimated tax payments since you really do not know your exact tax liability until you file next year.

Basically, you're trying to figure out your tax liability for the year and are making four payments during the year to avoid a penalty for underpayment of taxes.

You use form 1040-ES and its instructions ([url]www.irs.gov[/url]) to compute and make your payment. Publication 505 explains it in more detail.

Your payments cover both your income tax and self-employment tax (social security).

You may also need to make estimated payments for state tax.

This process can get complicated and time-consuming. You may want to use a tax professional so you can spend more time on your business and other things.

[abezon]

Also, you only have to pay in as much money towards 2002 taxes as you owed in 2001. (Line 56 on the 1040, I think.) If you owed $5000 in 2001 and got a refund of $300 (paid in $5300), you need to make sure the IRS has received $5000 by 1/15/2003. This avoids any penalties for under-payment. To calculate:
(Total tax in 2001 - amounts withheld from wages in 2002) divided by 4 is your quarterly payment. Make 2 payments immediately (Form 1040-ES) and pay the others on 9/15/02 and 1/15/03.

Set up a separate savings account so that you can pay the REST of your tax bill on April 15 next year. (Why use the IRS as a savings account when you can use a bank and get a little interest on your money?)

[Jalabee]

Thank you, abezon. So even though I just started my business this year, I can use my 2001 income as a guideline (paid from my old employer)? Is it not appropriate to estimate my income from my business this year, and simply take a quarter of that?

[abezon]

Originally posted by Jalabee
Thank you, abezon. So even though I just started my business this year, I can use my 2001 income as a guideline (paid from my old employer)? Is it not appropriate to estimate my income from my business this year, and simply take a quarter of that?

Well, *save* 25% of your profits, but only send the IRS as little as you possibly can on April 15, 2003. Besides, you don't know what your income for tax purposes will be until you do the tax return. It depends on what accounting method you choose, your form of ownership, the depreciation methods you elect, etc.

You don't use your 2001 income as a guideline; you use your 2001 tax liabilty as a guideline. Even if you owe $15,000 aster making estimated payments, you pay no interest or penalties as long as you have paid in as much as you owed last year.