“Grab that cash with both hands and make a stash.”- Pink Floyd
You’re a business owner and you pay yourself a draw from your business account. It seems pretty cut and dry right?
Taking a draw is definitely the quick and easy way that most business owners pay themselves. However, the government wants taxes paid to them along the way. The IRS doesn’t want to wait until the end of the year to collect their money!
That’s where estimated tax vouchers come in. They are quarterly payments to the IRS similar to when employees have taxes withheld from their checks. Except you’re mailing a check each quarter based on a specific calculation.
Generally, self-employed individuals who receive a 1099-MISC should pay estimated taxes. Especially, if you expect to owe $1,000 or more in taxes when you file your annual return. There is a calculator for determining your estimated taxes but it can still be a complicated process. Your CPA filing your tax return can do do the calculation and provide you with pre-printed vouchers for each quarter!
Each quarter you’ll mail the voucher and a check to the IRS (or pay online or by phone). They’ll apply the payment to your account so it will be deducted out of the taxes you’ll owe for the next year. There are penalties for underpayment so make sure your calculation is correct! Having a professional for this provides peace of mind to make sure it’s right.
Jordan Ilderton, CPA