Making Federal Tax Payments: What You Should Know
Working for yourself comes with the benefit being flexible to make your own schedule, but it also comes with the responsibility of paying your own federal taxes. As an employee, you can expect to pay your federal taxes at the end of the tax year, but it’s not quite that simple (or advantageous) to wait to pay your taxes all at once during the usual annual tax due dates if you are the business owner. Here is what you should know:
1. Know If You Need to Pay
As of 2017, you are expected to pay federal taxes if you owe a minimum of $1,000 or more in taxes. You’re generally expected to pay federal tax payments on a quarterly basis. Keep in mind that if you defer paying your taxes to the annual due date, you could be charged penalties for paying late. This will increase what you owe.
2. Understand Your Payment Options to Pay Down Tax Debt
Most business owners opt to pay federal taxes throughout the year by mailing quarterly tax payments using IRS form 1040-ES. Paying these estimated taxes throughout the year can help prevent the possibility of underpaying tax so you don’t face a large tax bill when taxes are due. However, it’s possible to underestimate and accrue tax debt.
If you owe a tax debt, you definitely want to pay it down, especially if it is subject to penalties, fees or accrued interests. You can pay your tax debt directly to the IRS using your bank account, via a debit or credit card, same-day wire, via cash at participating retail partner, via electronics funds withdrawal when you file electronically, or via mail with a check or money order.
Also, you have the option to defer your taxes by requesting an extension or setting up monthly installments if the payroll taxes you owe are $25,000 or less. You can still pay in installments if you don’t meet that threshold. You have to contact the IRS and may be required to fill out and mail Form 9465 and Form 433-F. Small businesses also can apply for the In-Business Trust Fund Express Installment.
3. Take Preventative Steps
Leverage business tax deductions to help reduce your tax liability, such as retirement account contributions or using the self-employed health insurance deduction. By taking strategic financial steps, you can save time and money for your business.
When it’s time to pay your federal taxes, it’s vital to know your payment options and how to reduce your debt. Prepare in advance to manage your tax liabilities effectively. Know and understand your payment options and choose the best one that fits your business needs.