How to Handle Upcoming QETs

It’s that time once again: time to whip out the finance books and try to figure out just how much you owe for quarterly estimated taxes, or QETs. More sitting down at the dining room table, going over numbers, scratching your head trying to figure out what this abbreviation stands for…

Wait, you don’t know what this is about? Quarterly estimated taxes are a big part of the small business owner’s life as they’re constantly buzzing around just around the corner, ready to pounce and make a mess. However, many small business owners still manage to forget about them, leading to headaches and possible fines.

Instead of putting them off, read our quick guide so you can get ahead of the game!

What They Are

First, here are the dates you need to know right up front:

Q1 – April 15, 2014 (you should have already paid this one on income made from January 1 -March 31, 2014!)

Q2 – June 16, 2014 (pay on income made between April 1, 2014 and May 30, 2014; this due date falls on the 16^th because the 15^th is on a Sunday)

Q3 – September 15, 2014 (pay on income made between June 1 and August 31, 2014)

Q4 – January 15, 2015 (pay on income made between September 1, 2014 and December 31, 2014)

Now you’re set, at least for a while. Write those dates down or put them into your online calendar so you don’t forget them.

Because QETs aren’t just going to go away, every year you’ll have to deal with them. But what are they?

Quarterly estimated taxes are the replacement for taxes taken out of your paycheck when you have a “9 to 5” job. Since you work for yourself you don’t have an employer to remit your taxes to the government for you. Nope, one price of independence is remitting the taxes you owe to the government yourself.

Instead of making you pay every two weeks or even by every transaction, though, the IRS has set up quarterly payments as detailed above. So while the system is a little aggravating, it could actually be much worse!

How to Figure Out Your Payment

So you have a payment due on the 16^th of June. It’s time to buckle down and get it done. What in the world do you do?

One of the first and best things you can do is to sign up for an account at GoDaddy Online Bookkeeping. You need all your small business finances in order and there’s no better and faster way to do it. Even if you don’t sign up, though, you still need to figure out how much you made over the past year.

Why? Because this is how you figure out your first (and subsequent) payment. Add up all your sales and then figure out how much tax you owe on those sales. Divide by four and you have your first payment.

Of course right away you notice an issue: what if there’s a huge difference with the amount of sales you made in one quarter? Wouldn’t there be a disparity? The answer is yes, it definitely happens – which is why they are called estimated taxes.

There’s also something known as the “Safe Harbor Rule” which gives you some leeway if you’re worried about getting hit with fines and penalties. For example, if you paid $2,000 in taxes last year, as long as you pay that amount this year you’re in the clear, even if business booms and you owe $15,000 worth of taxes this year. (Of course if you do accumulate such a high tax bill you’re probably doing something right!) Also, don’t think you’re off the hook. You’ll still owe the rest of that $15,000 by April 15^th of next year!

If you have any questions about QET’s, feel free to ask our experts at the GoDaddy Online Bookkeeping Community.