If you participate in a shared economy or peer-to-peer business, you may be faced with certain tax uncertainties. Many people get involved with shared economy businesses like Airbnb or Turo to make extra income. And while they may be aware that they owe taxes on that extra income, they may be unsure of the specifics. Quarterly taxes, for example, can often get overlooked by the novice peer-to-peer business owner, which could land them in some hot water come tax time. Should you be paying quarterly taxes for your business? Let’s look and find out.
Do I Have To Pay Quarterly Taxes For My Business?
When it comes to any income, be it full time or part time, the IRS wants their portion. This means that the income you earn from your short term rental or car sharing business is susceptible to tax. Since you are considered self employed, and taxes are not withheld automatically, you are responsible to remit these taxes on a quarterly basis. If you anticipate to owe $1,000 or more in taxes, then you will need to start paying quarterly taxes. Furthermore, if you have a particularly successful business, where you reach 20 K or over 200 transactions, platforms like Airbnb and Turo will issue a 1099 – K. This information is also being reported to the IRS, so it is extremely important to be honest, and accurate with your own reportings.
How Much Do I Have To Pay In Quarterly Taxes?
When it comes to quarterly taxes, determining whether or not you have to pay them is unfortunately the easy part. Calculating the amount you owe each quarter is a little bit more challenging. When paying quarterly taxes, the easiest way to go about it is to pay 100% of the amount you paid in income tax from the previous year. Simply take the total amount you paid, and divide that by 4 to arrive at the amount you should be paying quarterly. For example, if you paid a total of $1,200 last year, divide that by 4 and you have $300. That is the amount you should pay for each quarterly payment.
When paying quarterly taxes, it is important to keep in mind that you are better off paying a little more than a little less. Nobody wants to be hit with a surprise tax bill come tax day, and if you overpay the good news is you will get a tax return! Failure to pay quarterly taxes could result in costly penalties, which only eat at your profits! In addition to paying quarterly tax payments, you may also be subject to the self-employed tax, which makes up your portion and the employer portion of social security and medicare tax. The percentage for self-employed tax is 15.3%.
When Do I Pay Quarterly Taxes?
Quarterly taxes payments are due at regular intervals throughout the year. The breakdown is as follows:
First Quarter: Starts January 1st and ends March 31st, the due date is April 15th.
Second Quarter: Starts April 1st and ends May 31st, the due date is June 15th.
Third Quarter: Starts June 1st and ends August 31st, the due date is September 15th.
Fourth Quarter: Starts September 1st and ends December 31st, the due date is January 15th of the following year.
The due date for quarterly tax payments usually falls on the 15th of the month. However, if the 15th falls on a weekend or holiday, the due date is moved to the next business day.
Paying quarterly taxes on time is a good way to escape the unwelcome scrutiny of the IRS and avoid penalties. In addition to making quarterly tax payments, setting up a tax savings account can help prevent any unnecessary rainy tax days. This involves setting aside a certain percentage of your income in a separate tax savings account. This way when the tax collector comes knocking, you have the funds readily available. To learn more about paying quarterly taxes and other tax tips contact Shared Economy today!