Quarterly Taxes??? Help for understanding what they are & when you need to pay them


Visit our Etsy shop: GoToSupplies
Go To Great Panes, Kathryn Maloney ©2012
This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.

So it seems the Etsy “Taxes, Typewriters, Teams!” email and the “Wrapping Your Head Around Quarterly Estimated Taxes” blog post have folks wondering what they are supposed to be doing tax-wise and plenty seem confused.

While the vast majority of sole proprietors might have to pay quarterly estimated income taxes as mentioned in Etsy’s blog post, that is not true of the vast majority of Etsy sellers since most don’t sell enough to owe enough in income taxes to file quarterly. I’m afraid that wording was scare-tactic-y, and has made many worry.

To help allay your fears, here’s the basic run down for US sellers…

None of this info is meant to be a replacement for a good small business accountant if you need one, just a way to lead you to the info you can get free from official sources.

Federal:

Income Tax & Self-Employment Tax:
Most US sellers are responsible for filing tax returns on their sales to the federal government. If you are a sole proprietor you file the schedule C with your personal income taxes at the end of the year to report your self-employment earnings (help with the schedule C here).

Quarterly Estimated Taxes: This is what the Etsy email & blog was referring to–it is just a way to pay you self-employment tax (Social Security & Medicare Taxes) as you go instead of paying it all at the end of the year. You only need to pay quarterly taxes to the federal government if you expect to owe $1,000 or more in income taxes at the end of the year.

Estimated taxes are like when you work for someone else & there’s tax withheld from your pay–for self-employed individuals there’s no one doing the withholding, so there’s estimated tax instead.

Most small sellers don’t need to worry about estimated taxes–if you didn’t owe anywhere near $1,000 last year and business is about the same, you’re probably fine but you should keep track of your books so you can estimate when you’ll need to start paying quarterly taxes.

To see this info on the IRS’ website, and to see the way you calculate tax owed before you do your end-of-year income taxes to see if you need to file quarterly taxes, see this IRS page:

Estimated Taxes on the IRS website
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estimated-Taxes
“Who Must Pay Estimated Tax” section tells you about the $1,000 number.

“How To Figure Estimated Tax” section tells you the math behind your income & expenses that determines how much you’ll need to pay/shows you if you pass the $1,000 mark–as you see on that page, you use the IRS Form 1040-ES to do that math.

State:

Income Tax:
Most US sellers are responsible for filing income tax returns on their sales to their state government (in states with income tax). Some states will require you to file more often than once a year so be sure to check directly with your state for how it works.

Sales tax:
Most US sellers (whether a business or hobby / individual seller) need to file sales tax returns with their state government for the sales tax due in-state transactions. (More on sales tax below.)

Please note:
A few states also have business taxes, property taxes or other taxes but the rules are very different from state to state so I recommend checking out your state’s website and/or calling them for more details about your responsibilities (see the link below for your state’s official website).

Sales tax is a state-based tax and is totally separate from income tax. It usually requires the seller to register first, then collect tax from the buyer & remit it to the state on sales tax returns to be filed according to the schedule the state gives you (some monthly, some quarterly, some only once a year).

Generally, sales tax returns need to be filed whether or not you’ve had any sales.

If you haven’t registered with your state yet, this post will help you find the info you need directly from your state:

US: Sales Tax & Business Registration
Links to Official Government Websites
If you need more help, I can often be found in this Etsy forum thread–just post there and I’ll respond best I can:

http://www.etsy.com/teams/7722/business-topics/discuss/9799713
 

I hope that clears a few things up and de-stresses a lot of sellers. 🙂


Visit our Etsy shop: GoTo
Go To Great Panes, Kathryn Maloney ©2012
This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.

bloke