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Have You Paid Your Estimated Taxes?

Business Planning: Have You Paid Your Estimated Taxes?

Author: Brandon Jordan, CFP®, CHFC®, CEPA®, CVGA®, CLU®, MSA, EA | CEO of Impact Advisors Group

As a reminder, business owners and/or independent contractors have unique opportunities as well as unique challenges when it comes to their personal financial planning. The US tax code represents one of those unique opportunities AND challenges!

Historically, many business owners have opted NOT to pay estimated taxes during the year. Business owners often believed that reinvesting those dollars in the business would create more value than the cost of the penalty for late payment. More often than not, they were correct. After all, the penalty was only 3% on the amount of underpayment.

Things are different now as the IRS recently announced that the underpayment penalty will nearly triple… from 3% to 8% (the Federal Short-Term Rate plus 3%). Business owners now have a much more difficult decision to make as deciding to forego making the estimated payments will result in a much higher penalty.

June 17th is the due date for quarterly estimated taxes… and the penalties are assess on each quarterly payment. If you desire to avoid the 8% penalty, ensure you make the payment.

Our friends at the Wall Street Journal recently published an article on this topic: A Surging IRS Penalty is Costing Americans Billions. Here’s How to Avoid It.

If you’d like to bring clarity to the amount of estimated taxes that would need to be paid in order to avoid the underpayment penalty (the “Safe Harbor”), simply upload your tax return. IAG will prepare a tax report which will include the Safe Harbor amount.

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