- [Instructor] If you're a normal person,
you generally pay your personal income taxes once a year.
The deadline, of course, is around April 15th.
But if you're a business owner,
the IRS generally also wants you
to pay estimated quarterly tax payments
rather than pay everything at the end of the year.
So, in addition to your business tax obligations,
you will have quarterly personal tax obligations.
To do this, you will need a Form 1040-ES.
Now, there's a lot of information in the 1040-ES,
but the key page that you're going to want to look at
is this one.
This is the 2018 Estimated Tax Worksheet.
It varies a little bit from year to year, of course,
but those variations are generally modest,
and mostly focus on the tax rate at hand.
So, to begin with, in line one,
you'll have to determine the adjusted gross income
that you expect in 2018.
The IRS gives you instructions about how to do that.
It's generally going to be based on the previous year's income.
From there, you'll also have to let the IRS know
what deductions you expect to take in lines 2a, b, and c.
From there, in line three, you'll let the IRS determine
what it is you expect your taxable income to be,
and then you'll use the sheet above
to determine your expected tax.
So, the tax rates are shown in the previous sheet.
For 2018, we see them here.
So, for instance, if you're a business owner
and you expected to earn $600,000 in 2018
and you are a head of household,
you would owe $149,298
plus 37% of the amount over $500,000.
So, if you were going to earn 600,
you would owe 37% times 600,000 minus 500,000,
or an additional 37,000, over and above
the 149,298 shown here.
Now, of course, there are online calculators
that you can use to estimate this
if you don't feel like using the worksheet,
but nonetheless, you're going to have to tell the IRS
what your expected tax is.
You'll then take into account your AMT,
any credits that you have, the self-employment tax,
et cetera.
All of these are features that you're going
to have to take into account when you determine
what your estimated quarterly tax is.
So, going through your tax credits
and your self-employment tax,
if we assume that those won't apply to you,
they may or may not depending on the business in question
and the amount of money that you make,
you'll then have to figure out
what you total tax is for the year.
From there, you'll generally make a payment
of 1/4 of that each quarter going forward.
So, 25% of your total annual payment will be required
to be paid each quarter.
If you fail to make your quarterly payments,
the IRS will charge you a penalty for doing so.
On the next page, the IRS lets you go through
and determine when it is you're going to pay each
of these tax payments, and they should add up
to your total tax at the end of the year.
This is something the IRS wants you to handle
and take care of on your own.
The IRS, unlike, say, a conventional employee,
can't do payroll taxes for the self-employed,
so they use this quarterly tax system instead.
From there, you'll fill out the Payment Voucher
and mail that in along with your estimated tax.
Now, of course, if you end up overpaying,
the IRS will give you credit for that,
but if you underpay, they will charge you a penalty,
so you want to be sure that you paid attention
to your quarterlies.
Now you should understand how to use the 1040-ES
to comply with your personal tax obligations
as a business owner.