Owning a business can be an excellent means to support your family, develop a niche for yourself and bring your dreams to fruition. And although business ownership may provide you with the right to determine your schedule and free you from answering to a boss, it comes with some added responsibilities.
Whether you work alone or have employees reporting to you, you need to maintain financial records for your company. And as opposed to people working for a W2, you must pay quarterly taxes. But when finances are tight, you might wonder whether making quarterly taxes is beneficial.
3 ways making quarterly tax payments can benefit you and your business
Before becoming self-employed, you may not have thought much about the deductions made from each of your paychecks. But when you own a business, you must be diligent about paying your taxes.
As an entrepreneur, you need to make estimated quarterly payments to the IRS. And while finances might be tight, making estimated payments can help you by:
- Providing regular insight into your income. Many Americans do not budget their money. However, to make estimated payments, you must regularly keep track of your cash flow. Understanding your income can help you make good choices about how to run your business.
- Reducing your tax bill in April. Without making quarterly payments throughout the year, you could face a large bill when you file your taxes. But by spreading your payments out over the year, your tax liability may seem more affordable and could help you avoid assessed penalties.
- Removing unnecessary penalties. If you owe more than $1,000 when you file your taxes, the IRS could penalize you for underpayment. But making sufficient payments throughout the year can help you avoid penalties.
Rather than scrambling to cover your tax liability in April, the regular examination of your financial records, along with minimizing your risk of penalties, can allow you to maintain your focus on growing your business.
Although you may find it difficult to send money to the IRS when you are just starting out, quarterly payments do not have to set you back. Ultimately, they could make tax season less stressful, as well as less expensive overall.