What are estimated taxes and how do I know if I owe them?
September 16th, 2013 is this year’s date for third quarter estimated tax payments. While there are many who pay their taxes this way, we receive several inquiries as to what this tax is. According the IRS, “Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.”
Basically it is your with-holding tax for those of us who do not received a W-2 paycheck. Most small business owners are well aware that they are liable for estimated taxes. The problem can arise from those individuals who may receive a cash windfall in the year and don’t set aside money to cover the tax liability for that extra income. Come tax time, they may not only owe a large tax bill but they may be liable for penalties.