Estimated Tax

[rickanddianafreeman]

Do you need to pay estimated taxes on the sale of your business or just on 1099 and W2 monies you will receive in the current year? 

[JBedford]

Hi, @rickanddianafreeman , thanks for the question! You should pay estimated payments if not doing so might result in an underpayment penalty. This is often the case if you have any type of income that tax is not withheld from. 

Hope this helps, please let me know if not!

[Tax Hero Niki]

Hi rickanddianafreeman!

That's an excellent question. The government operates as pay-as-you-go. As income is collected, they require their cut at least on a quarterly basis. So if you land upon any money, including wages, 1099 income, the sale of a business, stock sales, a sale of an investment property, etc, the best course of action is to use an estimator tool to determine what the tax liability is, and to see if it is great enough to warrant sending an estimated tax payment. Generally, if you expect to owe more than $1000, then yes, you should consider sending an estimated tax payment to avoid underpayment penalties.

TurboTax has tools for this. Check out the Self Employment Tax Calculator or TaxCaster Tax Calculator.