What are quarterly taxes and why do I need to pay them?

Quarterly taxes are advance payments you make throughout the year that go toward your annual tax liability.

If your S Corp has profit, which means you earned more than you spent, then the IRS and some states require that you pay your taxes throughout the calendar year instead of all at once at tax time. This is where your quarterly taxes come in.

If you don’t pay your quarterly taxes, most tax agencies will impose penalties and interest on the balance due when you file your taxes.

During tax season, you’ll file your individual taxes and find out your total annual tax liability. Your quarterly taxes are applied to this liability and any remaining balance is due on April 15th (if you don’t file for an extension).

What you owe, or are refunded, is simply your annual tax liability minus the taxes you paid throughout the year. What counts as “taxes paid throughout the year”? It’s a combination of your quarterly tax payments and the taxes withheld from your W-2 wages (aka owner’s salary or shareholder-employee).

How do taxes withheld on my salary impact my quarterly taxes?

The taxes withheld on your salary are important to your overall personal tax liability but only capture the potential tax liability on your S Corp salary. Since there’s no way to automatically withhold taxes on S Corp profits, quarterly taxes ensure that you’re paying taxes towards your profits throughout the year.

How much do I need to pay every quarter?

As a Collective member, you don’t have to worry about figuring out how much you need to pay each quarter. You’ve got us for that. We’ll send you quarterly tax estimates throughout the year. All you need to do is send your payments to the IRS and your state.

How do quarterly taxes relate to Collective’s process?

After you complete your onboarding, Collective will start sending you quarterly tax estimates. Unlike other accounting firms, Collective runs a Profit & Loss report for your business and provides you with an estimate that reflects your personal tax liability for that quarter. As your income changes, your quarterly estimate will change to reflect your new tax liability.

IMPORTANT

If the next quarterly payment deadline (4/15, 6/15, 9/15, or 1/15) is less than 15 days from when you've completed your onboarding, please follow the links below to manually calculate your upcoming tax payment. Collective will automatically send quarterly payment instructions every quarter thereafter.

Here is a breakdown of how to manually calculate and pay quarterly taxes.

Here is a more detailed explanation of Collective’s quarterly tax process.

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