Quarterly Estimated Taxes

Again, I am not a lawyer. Always ask a lawyer / tax advisor about your specific situation. But in general, The IRS has information on paying people for businesses expenses here -

IRS Publication for Small Businesses

In essence, the IRS wants their money as quickly as possible. As you might imagine :) They do not want to wait until April 15th of the following year to get their hands on money that they could have NOW. In fact they want you to overpay, so that they get as much money as possible, and then eventually they will give you back the excess you paid in (without interest of course). Not to be too cynical or anything here.

So the upshot for home business owners is that this means, if say you are raking in $100,000/year with a really profitable home business, that the government isn't going to just sit around waiting for April 15th the following year to see any of that money. They want it sooner. And that is where quarterly taxes come in.

If you're going to end up owing more than $1,000 IN TAXES, then they don't want to wait all that time for their money. Note that this does NOT mean you're making $1,000 in profit. A company could easily bring in $1,000 and then with the deductions and everything still end up being owed money in taxes. This $1,000 is the actual end taxes you are going to owe the government, after all deductions and calculations.

Once you make a guesstimate of how much you're going to owe over the year, you divide it by 4 and then send a payment to the IRS on:

* April 15th (i.e. with the previous year's taxes)
* June 15th
* Sept 15th
* Jan 15th

Sure, you aren't going to be dead on. The government of course wants you to pay MORE than you should and then just get a refund at the end. If your business is fairly stable you can simply look at what you owed in taxes the previous year, divide by four, and send those in quarterly. If you're a little short, they just tag on small penalties. It's really not a big deal. I've done that. If you're over, they are very happy and send you the excess back eventually.

If your business REALLY fluctuates wildly, like $20,000 one quarter and then $0 the next quarter, it might be best to do estimates quarter by quarter - figure out what that quarter's tax burden is going to be, and pay it. The government is pretty OK with that if you keep records to show it really matched your income stream. And if your task is REALLY confusing, just call a tax person. Heck, mine charged $200 to do an entire year's taxes - including all the quarterly statements - and saved me many thousands of dollars. It really is worth it.

Actual IRS PDF Form for Quarterly Taxes

Taxes and your Home Business
Working from Home