Now is the time to pay those 4th Quarter Estimated Taxes (1040ES)
Posted by robkraft on January 8, 2011
I just finished writing a check to the Department of Revenue in Missouri to make a quarterly estimated personal tax payment (MO 1040ES). I made a similar online at www.eftps.com for a federal quarterly estimated tax payment (1040ES). The first year I was in business for myself I didn’t make estimated personal tax payments, because I withheld extra taxes from each paycheck instead. However, I made a filing error that first year and the penalty for errors is a percentage of the amount you are paying. Had I been withholding less, and using estimated tax payments from my personal account the penalty would have been lower. So I made the change the next year.
You may wonder why I even both to “withhold extra”, or make estimated tax payments. I am doing this because I pay myself a salary, but my salary is less than my revenue as a business. At the end of the year, if my salary and other business expenses is less than my total revenue, that total revenue will be converted to profit for the year (because my business is an “S” Corporation). I will then owe taxes on that profit. To reduce the amount of taxes you may have to pay in one large amount on this profit, you can do one of two things, withhold more throughout the year from each paycheck, or make estimated tax payments, usually quarterly. I prefer the latter as I have learned, the hard way, that it can reduce penalties from filing errors.