Wednesday, September 7, 2011

Have you paid your estimated tax payments for your Etsy shop or crafts business?

Many small business owners and Etsy shop owners get into trouble with the IRS because they do not make estimated tax payments or they do not have the funds to pay the IRS for taxes on their crafty business when they file their income tax return.  This is what you need to know:

1.     If you are organized as a sole proprietor (you file Schedule C) - your business profits are subject to federal income taxes and also self employment taxes (due to the IRS).

2.     You have to set money aside to pay for federal income taxes and also self employment taxes.

The IRS wants you to make “estimated” payments on a quarterly basis for the taxes that you estimate you will owe.  If you do not make estimated tax payment the IRS may charge a penalty.  Estimated tax payments are due on April 15, June 15, September 15, (of the current tax year) and January 15 (of the following year). In other words, for 2011, you would pay estimated tax payments on April 15, June 15, and September 15 of 2011 and on January 15th of 2012. 

Most small business owners do not like to make estimated tax payments because they think it’s inconvenient. You can make estimated tax payments online or on the phone using – it’s easy and convenient. Many small business owners also do not like to pay the IRS for income and self employment taxes because they don’t have the money or just don’t like to. I understand how they feel but look at it this way –your employer (if you are employed)  deducts taxes from your paycheck. In the end we all pay taxes. The best thing to do is to make sure that you put money aside to pay for estimated taxes. Make sure you do that or you may get into trouble with the IRS.  For more information, refer to Publication 505, Tax Withholding and Estimated Tax

For a free article "10 Things You Must Know About Taxes, Bookkeeping, and Business Licenses" and for free Excel worksheets just for Etsy shop owners and creative entrepreneurs visit my website.

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