The past several months have been beyond busy, and as tax time approaches, you are struck with a startling revelation: You forgot to pay your quarterly taxes last year. What now?
The truth is, unfortunately, there are penalties for missing your small business quarterly tax deadlines. However, understanding what these penalties are can help you to avoid making this costly mistake going forward.
Here’s a rundown on how small business quarterly taxes work, as well as the penalty for a missed quarterly tax payment if you’re a sole proprietorship or S corporation (S corp).
Why Do Businesses Have to Pays Quarterly Taxes?
The Internal Revenue Service (IRS) wants most of a business person’s tax liability to be paid prior to the due date for taxes. For this reason, as a general rule of thumb, anybody for whom withholding tax is not taken out of his or her income needs to make quarterly tax payments.
In light of the above, self-employed business people, including sole proprietors and owners of S corps, are required to pay quarterly taxes. The small business quarterly taxes covered by your payments in this situation include Medicare, Social Security, state income, and federal income tax.
When Do You Need to Pay Your Small Business Quarterly Taxes?
Estimated payments for small business taxes must be paid four times a year. These payments are due as follows:
- April 15 (this payment covers January to March)
- June 15 (this payment covers April to May)
- September 15 (this payment covers June to August)
- January 15 (this payment covers September to December)
As a sole proprietor or S corp, you can make these four payments either by check or online.
What Will Happen If You Neglect to Pay Your Small Business Quarterly Taxes?
Let’s discuss what happens if you forgot about paying your taxes last year. Two things can happen, which we’ll go over below.
The first outcome is that you will have a massive tax liability at tax filing time. For example, if you didn’t pay $8,000 during the actual tax year, then you will have to scrape up that amount when you’re filing your return. This isn’t a big deal if you have that amount in your bank account and you don’t need it for anything else, but for many small sole proprietors or S corp owners, this can deal a major financial blow.
For the 2019 tax year, you can expect to pay 6% on your underpayment amount. This rate applies from the specific date that you incurred your liability—not the specific date that you ended up filing your tax return.
Don’t Be Afraid to Seek a Penalty Abatement for Your Missed Small Business Quarterly Taxes
The great news is that if you find yourself facing a penalty for a missed quarterly tax payment, you could seek a first-time tax penalty abatement. This can be achieved by either writing to or calling the IRS. If you speak with an IRS agent by phone, get his or her number and name. Then, be sure to follow up with the agent in writing with a letter from your sole proprietorship or S corp.
When you speak with the IRS, don’t try to negotiate with the agency. You will either qualify for an abatement or you won’t qualify for one. In addition, note that even if you do receive a penalty abatement, you might still have to pay any interest that the government has added to your tax balance.
If you are denied an abatement, you have the right to appeal the IRS’s decision. In other words, be persistent. You may win the appeal if you have experienced a dire life situation, such as the death of a loved one, medical trauma, a house fire, or a natural disaster.
Address IRS Tax Problems with Confidence
In addition to dealing with small business quarterly taxes and the penalty for a missed quarterly tax payment, we at Delia Law can help you to sort out a wide range of other tax issues you may be facing with the IRS.
Get in touch with us today to learn more about how our services can provide your sole proprietorship or S corp with the tax relief and legal guidance your business requires.