Personal Finance (Not Investing) • Making Estimated Payments for Small Business

I have been using EFTPS for years and it is very easy.

Keep in mind that while we often refer to the estimated tax payments as "quarterly" payments, they really are not.
4/15 Jan, Feb, March
6/15 Apr, May
9/15, Jun, Jul, Aug
1/15 Sep, Oct, Nov, Dec.

I had a business and my wife had W2 income (I also had rental income). I generally would figure out what the safe harbor amount would be based on the most recent tax return. I would setup 4 equal payments with EFTPS to be automatically withdrawn from my account. For years where there was a significant downturn in business income, I would reduce the amount of the Jan 15 estimated payment to an amount estimated to give me at least 90% of my projected tax liability.

In your case, you could use the prior owners Schedule C, to estimate what your tax liability will likely be for the next year. However, it sounds as if your profit from the business may be different, either better or worse. So you can make your payments based on your taxable profits for the months in question. Actually figuring out what those taxable profits are can be interesting. For example, I am part of an LLC that owns an owner occupied (our business is the tenant) commercial building. We have a negative cash flow so our profit is negative. However, are taxable income from the LLC is positive, so we owe taxes.

The other thing that can help is if you or your wife have any W2 income, you can increase your tax withholding from your paycheck. Then the amount of the estimated taxes would be less with less chance of large errors in the amounts.

I appreciate you putting it that way about the "quarterly" payments not actually being quarterly. I have the due dates written down on my calendar but the associated months help put it in perspective.

To your point about W2 income, we will have W2 income and its significantly more than we expect the Schedule C business to generate. I will also factor this in but it's nice to know if I underpay with the estimated payments that any return we might otherwise get from the W2 income, can offset the taxes due for the business.

One thing to keep in mind is that you only have one tax bill. Just as you have one portfolio, even if it is divided among different accounts and account types, you will have one total Federal tax bill at the end. Your W2 withholding is just one way of paying that bill, just like estimated payments are one way of paying that bill. One significant difference is that your estimated payments have to be made in a timely manner. Meaning you that you have to make estimated payments that cover the tax liability for that portion of year. W2 withholding is different. It is always considered "timely". So all that matters with the withholding is that the totals are enough to cover your tax liability. That is why some folks will take manage to have large tax withholding near the end of the year as that will cover even income earned in the beginning of the year without worrying about being timely.

Any particular reason you used EFTPS versus other methods to submit the estimate payments? Does EFTPS produce a form showing what I paid throughout the year? I ask because I'm curious how I show the estimated taxes paid in TurboTax when I file taxes for 2024 in early 2025.

I started using it decades ago as it is geared primarily for business. I'm not even sure there were the other IRA platforms available at the time. You won't receive a statement showing what your tax payments were. The IRS knows what your tax payments were since they received them. You can check the last 18 months of estimated tax payments that you made on the EFTPS website if you need to double check your records. You will also have those tax payments recorded in whatever bookkeeping software/platform you use. TT only needs to have you enter your tax payments so it can subtract those from your tax liability and try to make sure your tax payments were timely.

Any reason you made equal payments? I'm really curious if there are potential issues with making different size payments for each of the estimated "quarterly" payments.

Because I'm lazy and busy. In addition to my wifes withholding, I was paying $80-$90k in estimated tax payments a year. Even though the business income tended to go up and down a bit (1st and 3rd quarter were always the best) it was easiest to just setup payments of $23k for each period. I then didn't have to think about them. Some years it meant I over paid, and then I would just have that amount applied to my 1st estimated payment for the next year and adjust my estimated payments accordingly for that next year. Other times I would under pay and then I would just pay the difference with my return in April (or more often I would send a payment to the IRS along with my extension request). Out side of the 2020-2023 years, I normally was within a few thousand dollars either way.

Statistics: Posted by WeakOldGuy — Tue Feb 20, 2024 2:47 pm — Replies 8 — Views 477

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