Why do I need to make Estimated Quarterly Tax Payments?

All taxpayers are required to pay their taxes throughout the entire year. People with wage earning jobs have this requirement meet for them when their employers withhold taxes from their paychecks. However, this automatic withholding does not happen for self-employed people. If your are self-employed, you are required to make estimated tax payments four times a year. Many people decide not to make these payments. Instead, they decide to pay all of the taxes when they file their return in April. Unfortunately, for most people, this decision is a mistake. First of all, the IRS will charge you a penalty for failing to make your estimated payments. Secondly, many people find they do not have the funds available in April. Many taxpayers accumulate large liabilities by failing to make estimated payments. It is much easier to budget for four smaller payments, then trying to scrape together a huge payment once a year.

Also, if you have a history of failing to make your estimated tax payments, the IRS will demand that you correct the problem before they will agree to a resolution regarding your past due liability. Therefore, we always tell our self-employed clients to immediately begin making estimated tax payments.