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Quarterly Estimated Taxes Explained: What Every Agency Owner Should Know

As an agency owner, it's important to know how to calculate quarterly income taxes. One of the most common tax mistakes a business owner can make is neglecting to pay estimated quarterly taxes. Since you don’t have an employer withholding taxes from your paycheck, it’s up to you to know how much tax you owe on the income your business generates and pay that amount by the quarterly deadline. If you fail to pay estimated taxes, you could be hit with penalties and interest for underpayment that can add up quickly. The IRS might also charge a penalty if your estimated tax payments are late, underpaid, or not paid at all. The fees are significant, so it pays (literally) to know how much you need to set aside every three months. 

 

How To Calculate Your Agency’s Taxable Income

 

It's important to know how to calculate quarterly business taxes so that you can figure out how much money you'll owe if you don't have a withholding tax or if your withholdings aren't enough to cover your taxes for a given period. You'll want to make sure that you're saving enough throughout the year so that you don't wind up owing money at the end of it.

 

Determine your business taxable income by:

 

  1. Estimate your annual business profit.
    Add up all of your yearly business expenses and deduct them from your total income.

  2. Calculate your annualized tax liability.
    Annual Business Income x Tax Rate = Annual Tax Liability

  3. Divide the result from step 2 (Annual Tax liability) by four.
    This will give you a rough estimate of how much your quarterly taxes will be. 

 

2022 Federal Income Tax Brackets and Rates 

Tax Rate

Single Filers

Married, Filing Jointly

Head of Household

10%

$0 to $10,275

$0 to $20,550

$0 to $14,650

12%

$10,275 to $41,775

$20,550 to $83,550

$14,650 to $55,900

22%

$41,775 to $89,075

$83,550 to $178,150

$55,900 to $89,050

24%

$89,075 to $170,050

$178,150 to $340,100

$89,050 to $170,050

32%

$170,050 to $215,950

$340,100 to $431,900

$170,050 to $215,950

35%

$215,950 to $539,900

$431,900 to $647,850

$215,950 to $539,900

37%

$539,900 or more

$647,850 or more

$539,900 or more


You can also use the
Tax Withholding Estimator tool from the IRS to determine the right amount to withhold.


 

Be sure to keep all expense receipts in case you need further proof of deductible expenses when filing taxes with federal and state agencies later on. If you find yourself questioning whether an expense is deductible, remember that it's better to err on the side of caution and only claim deductions within legal bounds so that there are no surprises down the road because something was overlooked or misclassified.

 

If this sounds overwhelming, don't worry! Our tax experts at Club Capital are available to help walk you through any questions or concerns regarding quarterly estimated taxes and filing requirements with federal and state agencies. 

 

Club Capital is the largest accounting and advisory firm for insurance agency owners in the country providing a one-stop financial infrastructure including monthly accounting, integrated payroll, CFO services, and tax preparation.  

 

Do I Need To Make Quarterly Estimated Taxes?

 

Keep in mind that not all businesses are required to make quarterly estimated tax payments. The IRS specifically exempts the following conditions:

 

  • If you expect to owe less than $1,000 in taxes at the end of the year

 

  • If you're self-employed or own a partnership or S corporation and you have no tax liability in the previous year

 

  • If you're a corporation and no tax was owed the previous year



You may need to make estimated tax payments if:

 

  • You receive income that isn’t from an employer, such as interest, dividends, alimony, capital gains, prizes and awards.

  • You have tax withheld from your salary or pension but it’s not enough.

  • You have more than one job but don't have each employer withhold taxes.

  • You are self-employed.

  • You are a representative of a direct-sales or in-home-sales company.

  • You participate in sharing economy activities where you are not working as an employee.


How to Pay Quarterly Estimated Taxes

 

The last step is to make the quarterly estimated tax payment. After determining how much you owe for each quarter of the year, pay that amount using one of these methods:

 

  • By check or money order
  • By wire transfer
  • By debit or credit card (if applicable)

 

The IRS also offers The Electronic Federal Tax Payment System and IRS Direct Pay as two easy ways to pay. You can also schedule electronic funds to be withdrawn for up to four estimated tax payments at the time that they electronically file Form 1040.

 

For the past 5 years, Club Capital has helped insurance agents better manage their agency's finances through best-in-class monthly accounting and tax services. Schedule a demo today!

 

Our experts at Club Capital are available to assist existing clients with any tax related questions, email us at tax@club.capital for more information.

By Club Capital | April 28, 2022 | Tax | 0 Comments

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