No Time To Deal With Estimated Tax Payments? 3 Alternatives For Your Small Business
If you have a sole proprietorship, income taxes are likely an increasingly complicated part of your business life. There are receipts to keep, expenses to track, mileage logs to write, and income to account for. For many small business owners, adding quarterly tax payments to this mix can be a headache they want to avoid. But, how can you avoid having to spend time dealing with estimated tax payments?
Here are 3 options for any business owner.
Withhold from Wages. If you or your spouse (if filing together) works as an employee for another company, you have the option of increasing the withholding through that employer to help cover your shared tax bill at the end of the year. You may want to ensure that whomever is earning wages files Form W-4 with their employer using the "Single" classification and zero exemptions. This will result in the highest withholding normally allowed. Alternatively, you may also request an additional dollar amount be withheld from each paycheck on Line 6 of this form.
Add Withholding From Other Sources. Most entrepreneurs have more than one source of income—especially in the early days of their nascent business—and so there may be other ways to add withholding. For example, if either partner is receiving Social Security or a pension from a prior employer, you can generally request that an amount be withheld from these payments to apply to your income tax bill.
Put It in Savings. If you have no other way to increase your withholding—or simply don't want to—you can save the money yourself and simply pay it at the end of the year in a lump sum. The best way to save for this purpose is to start a savings account specifically for this purpose so that you don't spend the money on other items. Stash the equivalent amount—such as 15.3% to cover the self employment tax—into your savings and let it grow until the IRS and state tax agencies want their share. The downside to this plan is that you may owe a penalty for underpayment during the year.
If you're having trouble determining the best way to pay your business income taxes, you may benefit from working with a qualified accountant with experience in tax services, at a company like Balkcom Pearsall & Parrish CPA's PA. They may even be able to help you streamline your tax payment process or remind you of estimated payment deadlines. That way, you can get back to the business of being in business.