What Every Small Business Owner Needs to Know About Estimated Taxes

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As a new business owner you have myriad things to worry about, but perhaps none cause more headaches than taxes. From itemized deductions to self-employment tax, to payroll taxes for those small businesses with employees, issues of taxation are commonplace and worries can be a plenty. But, there is perhaps one tax issue that has a tendency to catch even the most financially-inclined new business owner by surprise- estimated taxes. Understanding what they are, why they matter, and how and when to pay them is imperative to ensuring that you won’t be paying unnecessary penalties to Uncle Sam come April.

What Are Estimated Taxes?

At a basic level, estimated taxes are taxes paid on income that is not already subject to withholding. Anyone who is subject to them must make four periodic payments to the IRS each year. So why haven’t you heard of them? When you work for an employer, your pay check reflects taxes that have been withheld. Your employer is actually paying those taxes to the IRS periodically- it all just happens without you knowing because, well, there wouldn’t be any reason you needed to. But, when you start your own business- whether as a sole proprietor, partnership, S corporation, LLC, or C corporation, your wages are no longer being withheld and periodically paid to the IRS by your employer. It’s now up to you to make those payments on behalf of your business.

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