Do Small Businesses Need to Perform Quarterly Tax Returns?
- Almost all businesses are responsible for filing quarterly tax returns
- Specific IRS rules determine exactly who must pay estimated taxes throughout the year
- The best way to simplify taxpaying responsibilities is accurate bookkeeping
To put it simply, yes! All businesses and individuals take on a certain degree of responsibility to the government when they earn income. The American tax system requires that we all “pay as we go.” Businesses of all sizes, therefore, have come to do a share of the government’s work on its behalf. By withholding tax funds from every employee paycheck, companies act in part as tax collectors. This reduces the burden on the employees but implies more work for the employer, who is in a better position to handle the paperwork. The IRS still requires a report of accountability each year from all taxpayers, though. These are our annual tax returns, where we prove that we’re paying what we owe according to the law. If we pay more than we have to, refunds are in order. For businesses, however, quarterly tax returns are the norm.
Exactly Who Pays Taxes Quarterly?
Since some businesses are also just individual entrepreneurs, there’s some overlap between the filing requirements for individuals and companies. As a general rule of thumb, any individual who receives their income with no prior withholding should pay estimated taxes quarterly. The IRS lays out some more specific rules:
You must make estimated tax payments for the current tax year if both of the following apply:
- You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.
- You expect your withholding and refundable credits to be less than the smaller of:
- 90% of the tax to be shown on your current year’s tax return, or
- 100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
There are special rules for:
- Farmers and fishermen
- Certain household employers
- Certain higher income taxpayers
- Nonresident aliens
As for businesses, the IRS establishes the following minimums:
Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
You may have to pay estimated tax for the current year if your tax was more than zero in the prior year. See the worksheet in Form 1040-ES, Estimated Tax for Individuals (PDF), or Form 1120-W, Estimated Tax for Corporations (PDF), for more details on who must pay estimated tax.
How To File Quarterly Tax Returns
The first thing that all businesses need to be aware of is the sequence of four quarterly filing dates. Estimated quarterly tax returns for a given year are due on the 15th day of April, June, September, and January.
The other main consideration is what form to use. As noted above, Individual business owners and partners will need to refer to IRS Form 1040-ES. Corporate finance officers will avail themselves of IRS Form 1120-W.
As for the actual payment itself, the U.S. Treasury Department has made this a fairly simple task. The Electronic Federal Tax Payment System allows payments for all types of taxes due to the IRS.
Staying on Top of Tax Recordkeeping
Filling out the forms and actually submitting the quarterly tax returns is the easy part. The trick is to make sure that your recordkeeping is solid all year so you know how much you actually need to pay. SyncLedgers makes this process simple. Rather than you digging through file cabinets and shoeboxes, we categorize every invoice, receipt, and bill you scan in. We log every bit of it on your own ledgers for you. Contact SyncLedgers today for more effective bookkeeping solutions that make tax time a breeze! Your CPA will thank you for it.