What Can You Do if Cash Flow Concerns Make It Difficult or Impossible to Pay Your Estimated Quarterly Taxes

The United States operates on a pay-as-you-go tax system. The IRS requires small businesses and self-employed individuals to pay their estimated quarterly taxes. Instead of paying once on April 15 like individuals who have taxes withheld from every paycheck, these parties instead calculate estimated taxes, based on their earnings, to be paid at the end of each quarter: April 15, June 15, September 15, and January 15 of the following year.

Unlike salaried employees, small business owners or self-employed individuals may not always be able to predict their income or expenses – and they may not always have the reserves to bolster them during slower business periods. As a result, keeping up with estimated quarterly tax payments can become a challenge. Keep reading to learn more about what you can do if cash flow concerns make it difficult or impossible to make your quarterly IRS payments.

The Costs of Delaying Payment

Many might think the easy answer is to delay payment until any cash flow issues are resolved. Unfortunately, if you miss one of your quarterly estimated tax payments, you could be subject to a penalty. And, if you wait until the next quarterly due date to make up any missing payments, that penalty will continue to grow over time. That’s why your best bet is to pay as quickly as possible after the missed deadline and include late penalties, which you can calculate using IRS Form 2210.

Do You Qualify for Safe Harbor?

In some instances, you may be protected from late penalties under the Safe Harbor Rule. If you owe less than $1000 in taxes – or have paid at least 90% of the taxes owed for the current year or 100% of taxes owed for the previous year, the IRS may not charge you with an underpayment penalty. In addition, you may avoid penalties if you cannot make your due date because of a disaster, casualty, or other circumstance. If you’ve recently retired or become disabled, that can also exempt you from underpayment penalties.

You should talk to an expert if you have questions regarding your estimated quarterly tax payments. The Highland Tax Group is an excellent resource that can help you determine the best course of action if you are experiencing cash flow issues.