Track Expenses to Pay Less Estimated Quarterly Taxes on Form 1040ES
Topic: Taxes,Tips & Tricks | Comments Off on Track Expenses to Pay Less Estimated Quarterly Taxes on Form 1040ES
Many small business people track expenses by tossing receipts in a folder and wait until tax time to organize them. Often they then turn these expense documents over to a tax preparer. This is wrong for several reasons. First, if you don’t track expenses as they are owed you can’t tell how well your business is doing. Also, if you wait until the end of the year to record your expenses you are probably paying too much estimated taxes each quarter.
What are Estimated Quarterly Taxes?
If you are self employed or run a small business and have been doing that for more than a year, chances are that you are required to pay your state and federal income taxes on a quarterly basis. If you earn more than the predefined limit and don’t pay quarterly estimated taxes you will be liable for interest on the unpaid taxes and penalties. This is definitely to be avoided. Pay your estimated taxes by April 15th, June 15th, September 15th, and January 15th by mailing your form 1040es to your IRS service center following the instructions on the form. You can also submit the payments online here. Here is more information from the IRS on estimated taxes.
How can you reduce your Estimated Quarterly Taxes?
You have to report net income (profit) from your business on your estimated quarterly 1040ES form. Net income is income minus expenses, so you can reduce your income by deducting the legitimate business expenses it took to generate that income. By doing this at least quarterly and using that lower amount on your estimated quarterly tax worksheet 1040ES you may be able to reduce the amount of income you are required to pay taxes on. This is true as well if your business is making less income in the current year than the one before. If you have carefully tracked your expenses and income you can run an Income Statement for the quarter in question and use the net income reported there as the net profit for your business. An automated, online, income and expense tracking system like WorkingPoint.com would be perfect for this.