A Word About Income Taxes
If you operate your business as a sole proprietor or pass-through entity (e.g. self-employed taxpayer), you are required to make estimated payments quarterly to the IRS (and your state’s department of revenue) when you begin your second tax year.
- Payments are required April 15, June 15, October 15, and January 15.
- Be especially careful with the money you take out of your business operating account.
- Many new businesses fail due to improper management of federal and state income taxes.
- A generally safe practice is to transfer 25% of your net income to a personal savings account dedicated specifically to income tax payments.
- You may wish to do this monthly, or whenever you withdraw funds for personal use.
- Failure to pay quarterly taxes will result in penalties and a very large tax bill in April.
If you operate your business as an S-Corporation, your company must pay you reasonable wages and retain payroll taxes on those wages. Your business will also file and make payroll payments to the IRS and state department of revenue quarterly on April 15, June 15, October 15, and January 15, each year.