IRS Estimated Quarterly Tax Payments Basics

What Are Estimated Quarterly Taxes?

This is how the IRS collects income tax from individuals and businesses who are not employees of another company. You will make payments using Form 1040ES (Estimated Tax for Individuals) or Form 1120-W (Estimated Tax for Corporations).

Why Are Estimated Quarterly Taxes Required?

Employees have their taxes automatically withheld from every paycheck. Businesses, business owners, and self-employed individuals are responsible for submitting their own taxes. To make sure it’s done in a timely manner throughout the year, the IRS has set up this quarterly payment system.

Who Has to Make Quarterly Tax Payments

Sole proprietors, self-employed individuals, and corporations are required to pay estimated quarterly taxes.

Exception: If you will owe less than $1,000 in taxes for the year, you can pay them as one lump sum on April 15. Also, if it’s your first year of owing more than $1,000, you can pay the entirety on April 15.

How Much Will Each Payment Be?

If your income varies from month to month and year to year, you may be wondering how you will know your tax liability when you don’t even know your income amount yet. That’s why it’s called “estimated” tax. You make an educated guess based on the past year’s taxes.

You have 2 options for calculating the estimate: 100% of the tax you paid last year, or 90% of the current year’s projected liability (whichever is less). The instructions for the filing form will take you through the steps for Social Security and Medicare payments, deductions and credits.

Once you have the amount of your total taxes for the year, divide that number by 4. The result is your estimated quarterly tax payment.

If you can’t afford to make the same size payment every quarter, use Annualized ES Worksheet (Worksheet 2-9) to calculate each payment separately.

When Do You Send Payments?

The 2019 deadline schedule is:
• Q1: Monday, April 15, 2019
• Q2: Monday, June 17, 2019
• Q3: Monday, September 16, 2019
• Q4: Wednesday, January 15, 2020

How Does It Affect Your Income Tax Return?

You still need to file a return in April. The estimated tax payments you made throughout the year are subtracted from the amount of tax calculated on that form. If they were less than what you owe, you will have to send an additional payment to the IRS. If they were more, you’ll get a refund.

We’re sure many of you have noted that you might have TWO payments to make in April: one for quarterly estimated tax and one for your annual tax return. Not fun!

Isn’t There an Easier Way?

The IRS imposes a small penalty for not paying quarterly estimated tax. Depending on the size of their business and how much hassle quarterly payments entail, some companies choose to file just once in April and pay the penalty.

Another option is to retain an accounting service to handle all the calculating for you. Xendoo tax specialists can save you time and headaches, not just on income tax but also on payroll and sales tax reporting. You’re free to concentrate on more profitable activities, such as helping your business thrive and grow.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Outsource Your Accounting and Feel Better in the Morning

When they’re first starting up, it’s common for business owners to do everything themselves, including keeping the books — even if it isn’t their area of expertise. But as the business grows, it becomes necessary to delegate some tasks to others.

At this point, the business is faced with a choice: hire a full-time employee, or contract with an outsource company to provide accounting and bookkeeping services. Here are the top reasons why many choose to go the outsourcing route.

Accessing comprehensive expertise.

In addition to taking the burden of routine data entry off your shoulders, a team of CPAs will have you covered for financial statements, income tax filing, payroll preparation, regulatory compliance, sales tax reporting, cash flow management, and many other areas of specialist knowledge. You would have to hire multiple employees to match that level of service.

Using the latest technology.

For a small business, it’s often not cost-effective to buy state-of-the-art accounting software. For your outsource provider, it’s key to their success. The right accounting company will integrate its software with your business management system, giving you their capabilities at a fraction of the cost.

Avoiding payroll expenses.

A full-time employee comes with an array of costs — payroll taxes, workman’s compensation, unemployment insurance, health insurance, paid vacation, and other benefits — which can be as much as 30% of the individual’s salary in addition to what you pay them. It’s something to keep in mind when you’re comparing the costs of in-house and outsourced accounting services.

Saving on overhead.

If you maintain your own accounting department, you must have somewhere for them to work. That means expanding your office space, adding computer stations, data storage and backup servers, and everything else they’ll need to do their job. Outsourcing allows you to go completely paperless with your accounting, and leave all the space and equipment hassles to your provider.

Focusing on business growth.

With the accounting chores out of your hair, you’re able to put your time and attention where it belongs: controlling the quality of your products and services, staying ahead of your competitors, meeting short-term goals, and making long-term plans.

Getting your life back.

As you know all too well, small business owners work crazy hours. Freeing up the hours you spend on bookkeeping just might let you have your weekends off. Relax, recharge, spend time with family and friends. Come back to work on Monday with fresh energy and a clearer vision to help your business thrive.

Best of all, you have peace of mind knowing that experienced professionals are watching over your financials. You can get a good night’s sleep, and wake up feeling better in the morning.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

Ins and Outs of Accounts Receivable for Small Business

You may call it bills receivable, or simply invoicing. By any name, it’s crucial to the success of your business to get paid the money you’re owed on a timely basis. Here are our top tips for effective accounts receivable management.

Accounts Receivable Activities

Accounts receivable isn’t just a number, it’s a process. It starts with sending invoices and continues through recording payments as they come in, keeping track of due dates, pursuing late payments, and checking that the payment matches the invoice.

Tracking Late Payments

First, you need to be aware of when a payment is late. Your accounting software should be able to generate an aging report, which lists past-due invoices in order from least to the most number of days since the due date. Do this regularly, because the longer you wait to pursue payment, the less likely it is that you will ever get paid.

Encouraging On-Time Payments

Incentivize your customers to pay on time by having a late fee policy, which you spell out on the invoice (and in the service contract). Another possibility is to offer discounts for early payment.

Pursuing Overdue Invoices

Make an action plan for reminding customers that their payment is late. Options include sending a past due invoice, writing a letter, emailing, or calling to speak to them in person. You will also need a timeline: for example, send a 2nd notice invoice at 1 week past due, email at 2 weeks, call at 3 weeks.

If that doesn’t work, you’ll need to move on to stronger tactics, such as cutting them off until payment is made, turning the matter over to your lawyer, or selling the debt to a collections agency.

Selling Your Invoices

Relieving yourself of a delinquent invoice isn’t the only reason to sell your debt. You can also sell current or slightly aged invoices to get cash fast or use them to secure a loan; this is called accounts receivable financing. Finance companies will pay up to 90% of the value of an invoice. But they won’t touch old invoices, so don’t expect to go this route to get rid of bad debts.

Discuss the pros and cons of accounts receivable financing with your accountant or financial advisor.

Writing Off Bad Debts

If an invoice is 6 months or more past due and you’ve made every effort to get payment, face the fact that it probably will never be paid. The next step is to write it off as a bad debt in your accounting records. You will need the record to claim a tax refund if you’ve already paid tax on that expected income.

More Strategies for a Good Accounts Receivable Process

Maximize your chances of on-time payments with these steps:

• Run a credit check before agreeing to supply your goods or services to a business

• Get a signed agreement on payment terms before starting work

• Get a personal guarantee which gives you the right to sue the business owner personally – rather than his/her business – for unpaid debts (save this one for those with a bad credit record)

• Send your invoice immediately after work is done

• Track the customer’s payment history with you and deal with those who are consistently late payers (change payment terms or stop doing business with them)

• Make it easy for customers to pay you with options such as debit card, credit card, direct debit, or automated clearing houses such as PayPal and Stripe

As we’ve seen, your invoices are one of your most valuable assets. And for small businesses, in particular, getting paid on time provides that all-important cash flow. Smart, consistent accounts receivable can be your golden key to surviving and thriving.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

California Demands Seller Sales Tax Info from Amazon

In November 2018, Amazon announced that it will comply with the State of California Department of Tax and Fee Administration’s demand to provide third-party seller data. How will this action affect you as an FBA seller?

States Are Getting Serious About Sales Tax

We believe it’s yet another sign of things to come. More and more states will be tracking down the sales tax they believe they’re missing out on through eCommerce.
This isn’t the first time it’s happened. Last year Amazon released seller info to Massachusetts, Rhode Island, New York and Pennsylvania. Some states, such as New York, apparently only wanted to verify that all the tax being collected by registered sellers was being remitted to the tax authority. But California’s demand sets a precedent for a state to contact ALL sellers directly, whether they’re registered to collect sales tax or not, for information about sales they’ve made in the state.

Another such sign happened last June, when the United States Supreme Court ruled in favor of South Dakota (in the case of South Dakota v. Wayfair), that physical presence in a state is no longer required as part of the tax nexus. In other words, you should be collecting and remitting sales tax for any state where you have customers — no matter what U.S. state or country you’re based in.

The handwriting is on the wall, and undoubtedly all states will have some such policy in place sooner or later.

More Hassles for Non-Registered Amazon Sellers

Amazon has not provided sales or warehouse data to California, as some other states have done. All they’ve sent is contact info and federal employer identification numbers.

Apparently California is using that data to send questionnaires to sellers on the list. So far, the questionnaires favor those already registered to collect sales tax, in that you can simply provide your tax ID and leave the rest of it blank. So it appears that the state is really targeting non-registered sellers.

Don’t Ignore State Requests for Info

Many Amazon sellers who’ve already received the California questionnaire have put it aside, assuming the state would be slow to act. That may be true, but sooner or later, it WILL act.

And you really won’t like their next step, which is to turn you over to an auditor who will make an “estimated assessment” of the sales tax you owe. In fact, the auditor will just be guessing, not calculating based on the data you provided. Those guesses are often much higher than reality.

The state will then enforce collection of that assessment; and yes, they have the power to do so.

Don’t Expect Amazon to Hold Your Hand

You may have been expecting that Amazon would collect sales tax for FBA sellers. In fact, it’s already doing so in some states like Washington — usually with the result of more complications for registered sellers and more risk for non-registered ones.

Anyway, you are still liable for the tax in the years before Amazon started doing it. The state can hold you accountable for up to 7 years of back taxes, plus penalties and interest.

States will probably find it easier to pursue the third party sellers directly, rather than Amazon. That’s why we don’t believe it’s smart to rely on Amazon to make this sales tax issue go away.

There’s Still Time to Make a Plan

While it’s true that government agencies can take months to get moving after a policy decision is announced, the trend seems to be toward more fast and aggressive action in the case of eCommerce sales tax collection.  Xendoo helps customers navigate complex sales tax laws by keeping them compliant and leveraging other 3rd parties for tax calculations.   For more about our sales tax services, click here.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.