Are you worried about a large tax bill this year?

Tax season tends to be a time of uncertainty and panic, especially if you’ve avoided taxes through the year. But, year-round tax preparation is needed to prevent this panic and the large balances that come with it.

Below we’ve outlined how quarterly tax planning spreads out payments, in turn, improving cash flow and ultimately preventing big bills from stressing you out.

1. Determine if You Need to File

There are a number of people who have to pay quarterly taxes. This includes freelancers, independent contractors, business owners and self-employed individuals. This means anyone earning money from gig work or a side hustle still needs to file, even if they have a full time job elsewhere and their earnings are small.

Further, anyone earning money from rental properties, partnerships, or S-corporations will also need to file since these transactions are counted as earnings that do not have tax withheld on them.

For those that fall into these categories and are unsure if they should file, a good rule to follow is if their payments are anticipated to be at least $1,000 in federal taxes for the year, they should plan to submit.

2. Estimate Income Accurately 

Many taxpayers end up with a large bill because they underestimated their income when filing. Although a common mistake, it can be costly and impact cash flow throughout the year. So, be sure to review profit and loss statements, invoices and projected income regularly to get an accurate gauge before filing.

3. Mark Quarterly Due Dates

It should come as no surprise that quarterly payments are due each quarter, which is why it’s important to mark the due date in a calendar or diary to avoid forgetting. These dates are outlined by the IRS and are typically in April, June, September and January (of the following year).

Failing to submit for each of these dates usually results in large late fees and penalties, even when the full tax balance is paid in April.

4. Avoid Underpayment Penalties

Another reason why it’s important to accurately gauge income is because of underpayment penalties. Oftentimes, the IRS adds fees to accounts that pay too little, even when the full debt is eventually paid off.

To avoid these fees, aim to pay at least 90% of the current year’s tax liability or 100% of the previous year’s tax liability to ensure there won’t be a penalty for an underpayment.

5. Utilize Deductions and Credits

Quarterly taxes shouldn’t just be about what is owed but about deductions and credits. While submitting each quarterly statement, it is recommended to go through any deductible expenses like office supplies, mileage, or professional fees to determine how much you can write off. Not only will this help lower your tax bill but it will give you a clearer picture of what is actually owed.

For those going through deductions, just be sure to save copies of any bills or invoices from the transactions so they are not forgotten at the end of the year.

6. Speak With a Tax Professional

Preparing taxes each quarter can be time-consuming and tedious. From reassessing business health, to gathering documents, reviewing IRS rules and tracking due dates; it can be a lot to handle on your own.

That’s why we recommend speaking to a tax professional. Someone like us at A.P. Accounting & Tax Services can help by accurately calculating estimated earnings, identifying deductions on your behalf and developing strategies to prevent large bills from impacting you.

If you’d like help this quarter, give us a call at 407-328-5001 today.

Image: Unsplash