Millions of people make quarterly estimated tax payments during the year in lieu of income tax withholding. Learning about quarterly estimated tax payments is a rite of passage for any self-employed business owner. If you are required to pay tax estimates during the year they will be due in four installments, in April, June, and September of the current tax year, and then by January immediately following the year end.
Generally, if you expect to owe a $1,000 or more for the year you have to make estimated tax payments. But what do you do if your estimates are too high or too low? How do you amend your previous quarterly estimated tax payment? There are two reasons why you might want to do this:
- You overpaid. You paid more on your tax estimates than you actually owe, and want a refund of the over-payment
- You underpaid. You didn’t pay enough tax, based perhaps on revised income numbers.
Ironically, the first situation might be more urgent for cash flow purposes!
How to Amend Your Previous Quarterly Estimated Tax Payment
There’s no formal way to amend a previously filed and paid quarterly estimated tax payment. There are, however, different ways that you can adjust future payments to reflect changes in your tax liability.
If you underpaid your estimated taxes, you can make a supplemental payment of your estimated taxes after discovery. This will allow you to make up the shortfall in the shortest time possible. By making the additional tax payment after the fact, you may be back on track as far as your actual tax liability goes. You may not, however, eliminate the possibility that penalties and interest may be incurred if you underpaid your estimated taxes.
If you overpaid your taxes, there’s no way to file an amendment to get a refund, but you could deduct the overpaid amount from the next quarter. The best option is to use QuickBooks Self-Employed to track your income and expenses year-round. QuickBooks Self-Employed can easily calculate your quarterly estimated taxes based on your information and you can also e-file your quarterly tax payments.
It Could Work Out When You File Your Tax Return
If you are not able to adjust your quarterly tax estimates, the good news is that you can sort it all out when you file your annual tax return. If you have an over payment, you may get a tax refund when you file your taxes. Just make sure that you file as early in the year as possible if you expect a tax refund. That will enable you to get the over payment back as soon as possible.
If it turns out that you owe more in tax than you have made in estimated payments, you will have to pay the amount due when you file your tax return, however there is a safe harbor amount for estimated payments where if you pay enough you won’t be penalized. The safe harbor amount is typically 90% of your actual tax liability or 110% your previous year’s liability.
Also remember if your income streams are uneven throughout the year you may be able to use the annualized income method to avoid penalties for quarters where you had lower income and did not pay estimated taxes.
Don’t worry about knowing how to figure out your estimated taxes. With QuickBooks Self-Employed you can track your business income and expenses and calculate your estimated taxes. At tax-time your information can easily export from QuickBooks Self-Employed to TurboTax Self-employed.