Collective's Process for Quarterly Tax Estimates

What You Need to Know

As an S Corp owner, you’re familiar with payroll taxes being withheld from your salary. However, these withholdings don’t cover the taxes due on your S Corp’s pass-through profits. That's where quarterly taxes come in, ensuring you're paying a portion of your expected annual tax liability throughout the year.

Every quarter, the government requires that you pay estimated taxes on those pass-through profits. Estimated taxes are due: April 15th, June 15th, September 15th (not for CA residents), and January 15th. If those dates fall on a weekend or holiday, the deadline moves to the next business day.

Here at Collective, we simplify the toughest part of managing quarterly taxes—the calculations! We consider your S Corp activity, including profit and salary, to annualize your income and estimate your total taxable income for the year. This projection helps us determine your quarterly payment, rounded to the nearest $100 for simplicity.

How to receive the most accurate estimates

Because your quarterly tax estimates rely on your revenue and expenses, it’s important that your bookkeeping is up to date. If you’re a few months behind on your bookkeeping, now is a good time to catch up.

Here are some other tips for accurate quarterly tax estimates:

• Connect your business bank accounts to Xero or Collective Accounting

• Don’t co-mingle personal and business transactions

• Make sure to record all business expenses

• If you missed any expenses, enter them manually in the books

When you can expect your estimates

If your onboarding is complete by the quarterly deadlines listed below, you can expect to receive your estimate the month before the IRS due date.

If your onboarding is not complete by the date listed below, please click here to learn about the process for manually calculating your estimate.

If you are unsure of your onboarding status, please email hello@collective.com

How your quarterly estimates are calculated

As a Collective member, you don’t have to worry about the hardest part of quarterly taxes- doing the math! We will take care of that for you. If you’re curious about how we crunch the numbers, here’s how we do it.

Our estimate is based only on your S Corporation activity, which means S corporation profit and the salary you pay yourself. We take your year-to-date business activity (income and expenses), year-to-date S corporation salary, and year-to-date tax withholdings from your salary and annualize these amounts to project your total taxable income for the year.

Annualizing means we use your year-to-date income to project the total amount of income for the year.

Example: You make $10,000 in S corporation profit in Q1 so by annualizing this number we predict that you will have $40,000 in S corporation profit for the year.

Once we have annualized your income and tax withholdings, we subtract your federal or state standard deduction, applicable qualified business income deduction, withholdings (tax you have already paid to the IRS and state), and any other tax payments you have made (and which you have informed Collective) to get your estimated tax payment.

Because these are estimates, we round the results to the nearest $100.

This calculation does not take into consideration any other income you receive throughout the year - such as interest, dividends, outside W2 income, or income from a business that is not included in your Collective membership. If you do have income unrelated to your S corporation, which does not have any tax withholding, we advise you to pay a larger estimate to cover the tax on that outside income.

Collective will not be liable for any underpayment penalty or interest resulting from not paying enough estimated taxes due to income generated outside of your S corporation.

Calculating your estimates manually

If your onboarding is complete by the date listed below, you can expect to receive your estimate the month before the IRS due date. Click here to learn about the automated process.

If your onboarding is not complete by the date listed below, please read on to learn about the manual process.

If you are unsure of your onboarding status, please email hello@collective.com

Manual calculation steps:

To manually calculate your quarterly tax estimate, please follow these steps. These steps are for a general rule of thumb and the accuracy will improve once you are fully onboarded. If you have any questions about these steps please email hello@collective.com:

1. Check the table above for IRS Due Date

2. Run a report from your bookkeeping Profit & Loss for the date range indicated in the table above.

   1. If you use XERO, run a report from your XERO Income Statement for the date range indicated in the table above. Click MORE and make sure to select Cash basis.

      

3. If you live in a state that has a personal income tax, multiply your net income by the appropriate amounts: 30% to the federal government, and 5% to your state government.

4. If you live in a state that does not have a personal income tax, multiply your net income by the appropriate amounts: 30% to the federal government. We're looking at you Florida, Texas, and Washington.

5. Subtract any quarterly estimates you may have previously made. Then remit the remaining balance to each taxing authority.

6. Click here to pay the federal government.

7. Click here to pay your state government.

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.