If you are self-employed and will owe more than $1,000 in taxes at the end of the fiscal year, the IRS requires you pay your taxes four times a year in estimated payments. Estimated taxes are typically calculated using the safe harbor method, which takes your prior year tax liability (the amount of taxes you owed last year based on last year’s income) and layers on your business income for the current tax year. Estimated tax payments are submitted to cover self-employment taxes, unlike employee tax withholding (which employers take out of employee paychecks to cover income tax throughout the year).
These payments are standard for those not working for an employer and therefore not subject to tax withholding (ie. many of the small business owners we work with). We highly recommend paying these on a quarterly basis to keep an accurate and ongoing financial picture of your practice throughout the year. You'll also save money on additional fees and penalties from the IRS and state tax authorities.
At Heard, we provide both federal quarterly tax estimates and estimates for your home state. We utilize your tax filing information (such as your income level and filing status) to provide these estimates for you, while taking into consideration tax deductions and other eligible taxes you may owe. We provide you the calculation; all you have to do is pay!