Video instructions and help with filling out and completing Where Form 2220 Corporations

Instructions and Help about Where Form 2220 Corporations

Hey my name is Keith Hall I'm a CPA I work with small businesses and half for over 25 years helping small businesses just like you you may have a question today about estimated taxes do you have to pay estimated taxes now interesting the answer to that question in fact no you're not really required to but if you don't it's going to cost you so I answer that question a little bit tongue-in-cheek because certainly you should make the estimated tax payments that you're required to the key point is the IRS has a pay-as-you-go system for taxes now most people employee types have somebody to take care of that for them their company withhold tax out of their paycheck and sends it to the IRS on their behalf but small business owners those like us don't have anybody to do that so we have to keep up with the pay-as-you-go system by making estimated tax payments now those payments are due four times a year April 15 June 15 September 15th and January 15 basically for equal payments now the real question about estimated taxes is how much should your estimated tax payment be and that's really the difficult part the real answer is you should make enough in estimated tax payments to make sure you avoid all IRS penalties for late payment of tax because that's where it gets really expensive if you don't make those deposits so the IRS knows this is tough to estimate so they give us a couple of get-out-of-jail-free cards if you were a safe harbors in avoiding those penalties the first one in is this is the easiest one the easiest one to remember is if you pay in enough in your estimated tax payments to at least equal what you paid last year then no matter how much you owe or how much you make you won't have any underpayment penalties so you've got a copy of last year's tax you know exactly what the total tax was now this is not what you had to write a check for it's the total tax on your tax return you know what that number is and in estimating next year's tax payments take that number divided by four send that amount in each of the four quarters and even if you make a hundred million dollars you'll still have no underpayment penalty so that's the easiest safe harbor to look for so in a year that your business is growing you expect to have higher earnings therefore higher tax that's a great strategy for estimating your payments now keep in mind there's some discipline needed there because you're gonna have to write a check on April 15th because you've made more money but the good news is you've kept that money all year rather than send it to the IRS too early okay now the second get-out-of-jail-free card that the IRS gives us is if you pay in at least 90% of what you end up owing then you'll have no penalty or interest and that's kind of like they recognize it so it's an estimate so as long as you get close it's okay so if you end up paying within 90 percent now that's a little more difficult because you don't know what that numbers gonna be yet so you need to take out a piece of paper take out a pencil and do a little bit of math use last year's tax return kind of as a guide you know income is going to be a little bit different maybe you lost one of the customers that was your big customer last year or maybe you were out sick for a couple of months so your earnings are gonna be lower take that last year's tax return estimate what the income is going to be look at the expenses some are gonna still be there some maybe lower do a quick estimate and kind of like a pretend tax return for the whole year that'll tell you how much you think you're gonna owe take that number divided by four and those are your four quarterly estimated tax payments now when you get to the end of the year as long as you've paid in at least 90 percent then you'll have no penalties or interest now that piece of paper that you've done the math on keep that in the dress drawer somewhere great idea to take that back out halfway through the year or maybe in the fourth quarter of the year and look at your guesses again maybe you need to change some of those guesses maybe the year was better than you thought it was going to be or maybe it was worse than you thought it was going to be but just could you do the calculation once it doesn't mean you can't change that so it's a great idea to reevaluate that estimate as you go through the year now there's one other kind of a safe harbor that the IRS gives us and that is if you end up owing less than $1,000 at the end of the year then there'll be no underpayment penalty as well so that's also another one of those kind of get close now you may also be asking how do I make the estimated tax payments well as you might guess the IRS has a form for that the formants IRS Form 1040 es relatively easy to calculate or to fill out you basically have your name address your social security number your spouse's social security number if you follow Joan return you do put the numbers over to the right on the form right there in the instructions to the form 1040 es depending on where you live it'll tell you exactly where to mail the form along with your check and you'll be in great stead with the IRS on your