Should I be paying quarterly?
One of the big questions we get from our agents that always makes me chuckle (because of how they phrase it) goes something like this: Hey Andrea, my friend/mother/boyfriend told me I should be paying in quarterly. I have no idea what they are talking about, and don’t know what to pay, how much to pay, or even if I am supposed to pay, but should I be doing something with this?
Without diving deep into this, if you are making money, you should be paying in during the year. Remember, if you were ever a W2 employee for someone, every time you got paid your employer kept some of your money and sent it for taxes. This likely happened bi-weekly (or every time you got paid). Enter your life now- nobody does that for you. Because you are running your own real estate business, it is up to you to pay the tax that your old boss used to do. This is done quarterly, and in non-coronavirus, deadline screwing up, years, these payments are due as such: 2021 quarterly payments are due (Q1) 4/15/21 (Q2) 6/15/21 (Q3) 9/15/21 (Q4) 1/15/22. Then it starts all over. The intent is that when you file your 2021 tax return (in this example) you don’t owe anything since you have been paying it all year.
So how much do you pay? This is a pretty heavy question that you should be consulting with your tax pro on. The IRS requires that you be all paid in AHEAD of time, or they hit you with a penalty. You get this penalty even if you fully pay your taxes when you file your return (on time) since you didn’t give it to them in line with the dates I gave you above. Nice, huh? Pay too little in and you get stuck with a big tax bill come tax time (when you thought it was covered) and a penalty for not paying enough, pay too much in and you gave money to the IRS during the year as a piggy bank that you didn’t need to (and you owe back tax, you won’t get it back when you file). The best thing you can do is be on top of your numbers so you know how much money you are making and consult with your tax pro on how much you should be paying. Tax planning is super important here, so please connect with your tax pro to make sure you are in line with where you should be!