As we begin to wrap up this year and begin thinking about next year, tax planning is top of mind for pest control business owners.

Remember, the IRS requires you to not only pay your taxes for the year, but pay them at specific times as federal estimated taxes.

Here’s a short Q&A covering estimated tax basics for PMPs.

Who has to pay federal estimated taxes?
The general rule is you must pay federal estimated taxes if:

• You expect to owe at least $1,000 in tax, after subtracting your withholding and refundable credits.
• You expect your withholding and refundable credits to be less than the smaller of:
  • 90 percent of the tax to be shown on your current tax return, or
  • 100 percent of the tax shown on your prior year’s tax return. If your adjusted gross income from the prior year was more than $150,000 ($75,000 if Married Filing Separately), substitute 110 percent for the 100 percent requirement.

Those with income from self-employment, interest, dividends, rent, capital gains or other sources that are not subject to withholding may need to make estimated tax payments.

Those who receive wages can avoid making estimated payments by increasing withholding through their employers by filing a new W-4.

When are estimated taxes due?
Estimated tax deadlines are typically April 15, June 15, September 15 and January 15 of the following year.

How do I know how much to pay?
Work with your CPA or use the worksheet in Form 1040-ES. Include your expected gross income, taxable income, taxes, deductions and credits for the year.

Ask your accountant to prepare tax projections under different income scenarios. This approach is especially useful if your income varies significantly during the year.

How do I avoid estimated tax penalties?

Avoid penalties by paying the correct amount and paying on time. A penalty is imposed on each underpayment for the number of days it remains unpaid. A penalty may apply even if you have an overpayment on your tax return.

Final thoughts

CPAs often include estimated tax vouchers with their clients’ returns if a significant balance is due. These vouchers are often calculated using the general method to ensure compliance with safe-harbor rules. If you have a substantial balance due, confirm with your CPA that underpayment penalties have been considered in your tax planning.

With careful planning and accurate estimates, you can avoid unnecessary penalties and manage your tax liability more effectively.

Don’t hesitate to get in touch with PCO Bookkeepers & M&A Specialists with questions about estimated taxes, year-end tax planning or any of our tax preparation services.