New small business owner...wondering if I need to file quarterly taxes, how much I need to pay quarterly, and where to make payments!

[aaugustin]

Hello! 

I started my small Massage Therapy business last summer, so this will be the first full year I've operated my business. Because I'm starting out, my income and taxes were very low last year (I got a refund). I'm wondering if I need to make quarterly payments this year, how to determine the amounts to be paid, and where to file them/pay them. Thank you!

[JaredS_CPA]

Hello aaugustin,

Thank you for participating in the Ask the Experts event. As to your question, congratulations on your new business and glad to hear it is growing!

The most important thing you can do as a business owner is to keep accurate records of all your income and expenses. If you do that on a regular basis (monthly at a minimum), you will be able to see whether you are making or losing money. For the most part, your taxable income will equal your net income from your profit and loss statement. However, there will be some adjustments to that number depending on the number of assets you may have, i.e., do you own a building and have a lot of equipment or are you a mobile massage therapist and only visit clients?

Either way, until you have a better understanding of your numbers and how they translate into your tax return, I would plan to pay 25-30% of your net income for taxes. Right off the bat you will have a 15.3% self-employment tax. That leaves 10-15% for your ordinary federal income taxes and state taxes. You will be able to deduct half of your self-employment tax and 20% of your net income for the Qualified Business Income Deduction (at least through 2025), in addition to your standard or itemized deductions to come up with your taxable income, but the self-employment tax is calculated purely on your net income.

Here is an excellent resource from the IRS for more information:  Estimated Taxes

(You will need to search your own State's website for how to pay estimated taxes with them.)

I hope that helps.

[Ruth C-L]

There are at least three ways to figure out if you should make estimated tax payments.

1. You could use the TurboTax Tax Caster app.

2. Or in your TurboTax Tax Home, you can click on Add a State to your 2022 tax filing in the Tax Returns and Documents area of the home page you are looking at.  You will not actually be adding a state, but just opening the interview.

Then first open the Federal Interview; then go to Other Tax Situations; once there then go to Other Tax Forms, and then finally go to Form W-4 and Estimated Taxes.  You can then adjust your income and deductions for estimated taxes as well as adjust the tax withholding. 

3. You can also use the handy IRS app to determine if you need to make estimated tax payments. Only enter information that's relevant to your situation and leave blank the rest of the areas. https://www.irs.gov/individuals/tax-withholding-estimator