What the heck are estimated taxes? Here’s a rundown. The IRS has two basic ways of taxing a person's income:
- Withholding. If you work for a company as an employee, your employer takes taxes out of each paycheck, known as "withholding." The withholding goes toward income, Social Security, and Medicare taxes.
Estimated taxes. If you're self-employed, you work for yourself, and you have to do your own withholding. You have to estimate your income, expenses, and deductions and pay taxes on the estimates on a quarterly basis.
Sometimes called “quarterly” taxes, you’re required to make payments on these estimates 4 times a year. These payments go towards your self-employment tax, which is a tax that covers your share of Social Security and Medicare taxes on the self-employed money you earned. Because you’re your own employer, you get to be the one to set aside money to cover the tax and send it to the IRS throughout the year.
Good news: You don’t have to figure out the correct estimate amounts all by yourself. QuickBooks Self-Employed calculates these for you and helps you pay them.
Types of estimated taxes we calculate
We calculate estimated taxes for self-employed people with service-based businesses. We calculate your federal quarterly payments for you. We don’t calculate other types of tax estimates or more complicated tax scenarios. These include:
- State income taxes
- Sales tax
- AGI phase outs and alternative minimum tax (AMT)
- Children's interest
- Medical expenses, stock payouts, and 401K draws
- One-time lump sum distributions
- Special-cases standard deductions (if you're blind, over 65, etc.)
- Tax credits
If you need to calculate these types of taxes, it's best to consult with an accountant.
How to find what your estimated payments will be
We have signposts throughout the app about upcoming due dates and payments. For the details, click Taxes in the navigation bar and select Quarterly taxes. There you'll see the quarterly schedule, recommended payments, and amounts you've paid.
Click any quarter to reveal details about your income, deductions, quarterly profit, payments, and more. On the right, you can also view your projected profits for the rest of the year and your tax profile, both of which are part of estimated tax calculations.
You can also look at the year as a whole and see what your biggest deductions are. Click Taxes in the navigation bar and click Annual taxes. There you'll see your taxable business profit and details about your business expenses and how they translate into deductions. You can also download a tax summary (PDF) or tax details (XLS) for the year. (These files come in very handy when filing your annual taxes or working with an accountant.)