Wrapping Your Head Around Quarterly Estimated Taxes

Thank you for sharing this info - very helpful! Martin - Adornments NYC http://www.AdornmentsNYC.etsy.com

Thank you for the tax tips. I found this article very useful.

Thank you so much for the tax help and the support.

ouch...our least favorite subject!!

Thanks for the reminder! :)

Thank you for the tips!!

this is very useful information!

It's so important to be on top of this before it bites you in the behind! This is valuable information to all Etsy shop owners & I encourage everyone of you to be on top of the administrative side of your creative business and create a solid foundation so it never gets out of hand. Lisa LeafandInk.com

Thanks for this! I love outright!

Thank you so much for this info. Very useful.

I have a great accountant who keeps me on the straight and narrow and doesn't let me forget to make a payment when I need to or to file when I have to! Taxes, inevitable.

Great info, thank you!

Very helpful. Thank you, Etsy!

Very helpful! I had found Outright via Etsy and have been using it for over year now and now taxes are just one more easy thing to take care of- no more tax-stress!

thanks! this definitely helps. :)

Oh wow! I wish I had known this sooner! Despite being a registered business, and keeping track of all my records for tax time, I was not aware of having to pay 4 times a year! Looks like I had better get on the ball and call my accountant! I'm semi curious why they never mentioned this- mind you I've only been open since February, but still! Thank you for this article!!! Its a life saver! I signed up for Outright during the last article about them, and this feature is great! ~Wren ZenAndCoffee.etsy.com Arm Warmers & Fingerless Gloves for all seasons & styles! ~~~ Custom Orders Welcome! ~~~

Thanks for the reminder!

taxes? What are these taxes that you speak of?

Oh no! I have tax trepidation. Thanks for the link, a lot to learn. Does anyone know if theres a minimum that you dont have to pay taxes on? Such as if I only earn under $500 per quarter or year. courtney http://www.goblinsupermarket.etsy.com tempting adornment

Perfect! One of the things on my today's to-do list is to calculate the quarterly taxes to mail them next week.

I've been thinking a lot about this... I increased my hub's and my withholding from our day jobs this year and I'm not quite sure how much I should be sending in. It's also extra complicated when you make most of your income in the winter months but they expect you to send it payments in March and June when you made next to nothing!

OMG! Taxes Yikes! Thanks etsy for the reminder and all the help! Beth

Great info!

Below are some great tips for tax deductions that might be overlooked by newbies if you are going at it yourself. So many things you do are deductible- part of your mortgage for studio space, mileage to the post office & supply store EVEN if you DON'T find the supplies you need. Read more: http://www.allbusiness.com/personal-finance/individual-taxes/2481-1.html http://www.bankrate.com/finance/money-guides/a-dozen-deductions-for-your-small-business-1.aspx Thanks for the informative article!

Thanks for this helpful article. I'm still doing my homework ( and enjoying learning all the Etsy) before opening my shop. I'll add it to my list. Hard to know how to estimate your first year. Any advice? - Newbie

Great information - thanks!

Thanks for the helpful article. I am still doing my homework and learning all "the Etsy" before opening my shop. Thanks too happygolicky for the links above. My question is how do you know how much to estimate your first year? Anyone have advice, ideas suggestions? Newbie

Thanks for the information

thanks for the reminder! appreciate it!

Excellent advice & thank you happygolicky for the additional websites/info :)

Important info..thank you!

Hey here's a tip! Don't calculate your own estimated tax penalty on the return. If you get it wrong and overpay the IRS won't refund it to you! Let the IRS calculate the penalty for you.

not only am i crafty but i'm also a tax professional. heheh.

I'm not a registered business (and sadly, no sales yet anywasy) - do I need to register? If not, do I simply state my earnings annually on the federal tax form????

Taxes... one of the certainties...

Taxes... ugh... I just finished my corporate taxes and it was not fun! But, luckily I have a great support system with my accountant. These are fantastic tips and great work for sharing the tips. Oh yeah, take heed to DevilMakesWork's comments on calculating your penalties - don't do it.

Pay taxes? I need to find out the minimum earned to begin paying taxes. I've spent way more on glue alone than I've ever made! But thanks for the heads up!

I'm not making enough yet to pay quarterly taxes… maybe next year!

Thank you for sharing. Marking for when I need this info.

WOW!!! This is huge. As I am just starting out, this info will help me tremendously. Thank you!

Great article - thank you so much!

nice info that is easy to understand, thanks for sharing!

If anyone has any specific tax related questions for their Etsy business, feel free to send me a convo and I will help you the best I can. I am a CPA.

Here in NY we can either pay by snail mail or on-line. I just received a postcard in the mail reminding me that my taxes would be due soon so I'm all set. Thank you for helping us keep on top of the things we don't like as much! :) I appreciate it!

if you are planning to file taxes with your spouse, do you have to pay the quarterly estimated taxes on the business?

Thanks guys for posting all the other little links too. I'm just getting started and this is helpful!

Thanks a million! I've been looking for info on this for awhile, nice to finally have it handy. :)

marking so I can find all the links again!

Now I'm confused! I thought with a sole-proprietorship there were no specific business taxes. I thought the owner paid taxes on income from the business as part of his or her personal income tax payments - yearly, not quarterly. Guess I better do some more research!

Great info here! Thanks so much for the reminder.

Very good points! Many small business owners get in trouble if they postpone the inevitable (such as paying taxes). I also want to make you aware that if you are selling hand made items, there are fairly complicated rules for what you can and can't take off as a business expense. You can take off shipping, fees, advertising and office expenses, but when it comes to supplies, such as packaging and materials, you can only take off the cost of goods sold. So, if you have spent $1,000.00 in supplies, and the cost of the goods that you sold was only $400.00, then you can only take off $400.00 as a business expense in the year it was sold, and not the full $1,000.00. The problem with this is that even though it looks, on paper, as if you didn't have much of a profit, you may have more profit than you thought after you fill out the IRS form for calculating the actual cost of goods sold. To calculate your profit before you send them your estimated tax payments, the easiest way to deal with this brain frying issue is to just take off a fixed percentage of every item that you sold, that way you don't have to figure out what the cost of every single item was when calculating your estimated tax. For example, if you just sold 10 items, you can add up the cost of creating each item, divide the number by 10, and then figure out an average percentage for the cost of goods sold. So, if you get that the average cost of an item is 30%, you subtract 30% from your gross income. Then subtract the shipping fees, advertisements, other fees and office expenses etc, and what you are left with is your taxable profit. Multiply that with your tax percentage, and your estimated tax payment will be pretty accurate.

Minimum earnings before you have to pay taxes when you are self employed is only $400.00 for the year. If you are employed by others, you can make way more before you have to file. So, there isn't really a way around it.

When it comes to taking off the interest from mortgage payments, and depreciation for use of office space or business car, be careful! If you are planning to sell your house or car in the near future, the profit that you make on anything you have taken off your taxes for business use, is considered taxable income. So, don't take off a percentage for your studio space unless you are planning to keep your house.

Someone mentioned that they didn't think sole proprietors have to pay estimated taxes. For your information, they actually have to pay more taxes than people who are employed by others. If you are employed, your employer has to pay half of your social security tax. If you are self employed, you have to pay 15.3% to social security. The good thing is that, as a self employed person, you are allowed to take off more expenses from your gross income. So, that evens it out a bit.

I'm new to selling handmade items and this has really clarified some questions I had. Thanks for the info.

I'm just starting out. Do any of you more experienced ETSY'ers have a favorite method or software for tracking expenses and sales so tax time is a cinch?

I needed this advice! Going to check into Outright.com

Thank you! I signed up and now have my accounting under control. I can't tell you how thrilled I am!!!

GREAT TOPIC thanks everyone for sharing your knowledge! Hate to say this but right now I'm thankful I don't yet have to worry about this little item BUT on the flip side let the SALES begin, I can't wait to jump into the tax frying pan!!!!! :)

Guess this is the advantage of having a day job! Since my jewelry business is just a fun little side gig to make a little extra money (for now at least!), my withholding from my day job covers all the taxes I owe for the year and then some, since I don't claim any exemptions on my W-4. I may eventually be stuck paying quarterly taxes, but for the time being I don't have to worry about it. ;-) (And I know, it's silly to let the government basically get an interest-free loan from me, but I'm more likely to put the extra money into savings if I get a big refund check each spring than if I get it as a slight increase in each paycheck!)

THANKS for information www.jusadreamin.etsy.com

these are great tips! but in some states, if you contact your tax office you can have it arranged for you to pay only once a year.

Thanks for keeping us on track! Very useful information.

Thanks for this! I'm working on my taxes now... so what happens if I pay all three payments in one lump sum this September --- which is what i'm doing? I will have paid the total due, but not in 4 payments? Will I get penalized? Thanks!

I'm going to be two days late--anyone know if there's a penalty for that? It's my first time sending in these forms.

very helpful,thank you!

I get confused every time I see something about these taxes. in the description on the IRS website it says that you pay this tax IF you expect to owe at least $1000 in taxes at the end of the year. these articles never say that. if you're not actually making any money (filing a loss or just making hobby income), do you pay this or not? for self-employment tax it says you have to make at least $400 in the year before you owe anything.

I'm having a 15% off sale in honor of the HUGE tax amount I have to pay this month!!!

Shadow Cutter says: "in the description on the IRS website it says that you pay this tax IF you expect to owe at least $1000 in taxes at the end of the year." Yes, that's right. This article should really address that.

I'm not not at the point to need to worry about taxes yet, but I can't wait to be!!!

Always a fun time!

Vote for me http://blackcelebrationawards.com/fashion-nominees/

I'm not a US seller, but it's good to know anyway. :)

I'm at that point of having the honor of paying quarterly. Thank you for this article, very helpful. Helpful comments as well.

I pay annually. I don't know why they decided to do that, but that is how I pay. Also, if you have any issues with the IRS...PLEASE call them on the phone! They are extremely nice and helped me out so much when I first started paying for sales tax!!

Andrea...stop spamming.

This is Laura from Outright. Yes, it is correct that you don't need to be Quarterly Estimated Taxes if you owe less than $1000 at the end of the year. Unfortunately, though, it can be hard to know if this applies to you or not. We'll talk more about this on Wednesday's online lab.

Oh that would be cool. It would nice to be quarterly....because then I'd be making more money.....le sigh.

This is what I am taking away from this article... Limit sales to $399/ yearly to stay under the radar...

lol April

This still doesn't make sense. How do I know if I have to pay quarterly taxes? This article did nothing for me but create unnecessary fear (and loathing, ha.).

Sarah - Send me a private message if you want to discuss... Sorry to hear that you are confused, but happy to help. Thanks!

Very excited about this Wednesday's lab mentioned by Laura Messer. But for now I think I am just day dreaming about needing to worry about this stuff. :D Step 1, hurry up and get busy so I can sell more... Step 2 make at least $1000. Maybe, oh well just wait until Wed. then make a game plan!

I'm looking at the IRS website right now in another tab and there's some good news for those of you who have a brand-new business this year and have not made your quarterly payments. If you meet ALL THREE of these requirements you do not have to pay quarterly tax *this year*: (1) You had no tax liability for the prior year; (2) You were a U.S. citizen or legal resident for the entire prior year; and (3) Your prior tax year covered a 12-month period. If you meet ALL THREE of those requirements and you're just starting out, it is a sort of a grace period for you. Obviously, double-check with your friendly neighborhood tax professional to ensure that ALL THREE conditions applied to you. I'm particularly interested in the definition of "tax year"--do they mean your accounting year or *their* tax year? Worth following up.

Surely doing it quarterly makes it very much easier? Here in the UK, if you're self-employed all the accounts & taxes just have to be done once a year... a truly mammoth task even if you're fairly well organised! Good luck to all you US folks, keep reminding yourselves how much you get for your tax dollar! ;-)

Thanks for keeping us informed.

Great info about the dreaded T word

Thanks for all your info guys! Lets make sure we cover our buttocks.

Question? What if right now I have been just doing my etsy shop as a hobby and haven't gotten a tax id number yet for a business, when i do become an actual business....how will i know how much to pay at each quarter since I do not have a last year to look at? (hope this question makes sense)

Megan - Good question. The IRS defines a hobby as "an activity not engaged in for profit." So, if you are making a profit, you are likely considered a business, for tax purposes. That doesn't mean that you need a tax ID or anything... just that you are supposed to report your profits on your tax return. And, you are supposed to pay estimated taxes if you are expected to owe over $1,000 for taxes for the year. Hope that helps! Thanks, Laura from Outright

How much would one have to make from sales before falling into the class of owing $1000 in taxes?

What if your business doesn't make any money? Where is the best place to find help with the taxes?

How much money does your business have to make to be required to do these taxes?

How does this affect me if I do not have a business license and do not sell much?

why do these articles always make it sound like something is NECESSARY? you are only required to pay quarterly, if you expect to 0we $1000 or more at the end of the year. which roughly equates $4000 in profit. and there are many other factors, such as if you already normally get a $2000 refund each year, then that means you could probably have $8000 in profit before you even start owing the IRS anything. there are several different factors that determine if you need to file quarterly, and there are ways to even avoid it. you can avoid it by having them withhold more from you or your spouses regular paycheck to cover those taxes.

You should all head to outright.com. My biz doesn't make any money right now either because I just started 2 months ago. I made an account and filled out the info in outright and it says I do not owe any money. Etsy people- thanks, this post is very helpful!

It's my understanding that there are three types of taxes to file and pay: Personal Income tax on your profit (file yearly) State and local income taxes on your in-state sales (this can be monthly, quarterly, or annually, depending on how much your revenue is...mine is annual). Self-Employment (social security) tax payments if you have over $400 net profit in a year. These are to be filed quarterly and seem to be the topic of this article.

Thank you so much, very useful information and sites that I did not know existed like the Outright website, as soon as I found out and signed up. I have basic math skills and with this tool I think it will be a lot easier for me to keep track of what I am doing. Big thanks!

As many have commented this article scared me and had me calling my accountant, but it's once a year for me as well in Massachusetts. Many of us newbies will barely break even so we really need to look at all our deductions at the end of the year;) thanks for the reminder though.

I have no idea what to do!! Eeeek!

where would I be able to find the sales tax information for states that require stationery /papergoods taxes? Is there a partciular website for online business owners? I would like to input these percentages into the zip code ranges . Thanks!

Merci !

Thanks for the reminder!

ugh! i am paying taxes for my first time this year and i had no idea i had to pay quarterly. well i love everyone at etsy for writing this article!!! i would love to see a monthly section on paying taxes becaue i need all the help i can get :)

I had such a hard time last quarter, my first year in Texas and doing taxes seemed all different! I called the state Comptrollers office and they were actually ridiculously helpful. The guy on the phone walked me through every single step without making it long and confusing!!

I appreciate the helpful advice here - Thank you!

Excellent advice

The reminder is appreciated. It is even easier now, if you check with your state site you can do it all online and it will even do the math for you. Such as in Colorado: www.colorado.gov/Revenueonline

Very good read. Thanks for all the helpful tips! My shop www.etsy.com/shop/StoreyThreads Is just getting started. Id love some in put!

The payment is actually due on the 17th of September this year since the 15th is a Saturday!

I don't understand why Outright and others say September 15th. I am in PA and I can't make a payment for this quarter until October as September is still part of the 3rd quarter of the year. This goes for every other quarter...you can't pay for something that hasn't happened yet...no?

In Maryland, I declare my sales and use taxes every month on the 20th

Thanks for this!

Thanks Etsy!

Are you sure every Etsy store owner needs to file quarterly? I think it depends on how much they make. I've heard the I.R.S. requires anyone who ends the year owing the Government $500 or more needs to make quarterly payments. I don't think everyone falls into that bracket.

Eeek this is confusing. Since I started selling on Etsy in 2007 I have made $2704.00 but that's what Etsy says there are still costs of materials and stuff.so thats not my actual income. This year I am at $513 before cost of materials so how would do I figure out how much I need to pay in taxes?

Very good info. I went to outright and found out I have a net loss for the year....and that doesn't include material costs. Feel pretty safe not filing quarterly taxes, unless they wanna give me a refund.

My Q3 is exactly 10 times my Q2. Taxes are an unbearable headache.

I do quarterly NY State sales tax returns, but according to http://www.tax.ny.gov/ the due date is 9/20/12.

Oh, the dreaded taxes! Thanks for the great information!

Awesome, thank you!

But i don't understand ? I just started selling on this site, and I don't understand why they don't set it up to collect any sale taxes from the sales you make from the customers? They just set it up to how to retrieve the money from the customers, but nothing on dealing with the sale taxes that you are should collect in order to pay the taxes that are owed to the IRS. I am really confuse here? I thought this would be like Amazon, where you have to make over 200 transactions and or twenty thousands in sales over a year to pay any taxes your owe to the IRS. I submitted a W-9 Form from Amazon and I don't understand why ETSY is not doing that with the sellers? Can anyone help me understand more clear on this? Can some guide me to a site to get help to understand the new law that we have to pay taxes if we sell on Amazon, ETSY, Ebay and others? There got to be a place that can easily explain all of this. I don't even have seller's permit and I am selling on this site? Very confusing. Any help would be great Michael

Great thread - I feel better now - seems the easy way around qrtly filing is to make sure more is taken out of my husbands REAL JOB paycheck... but now I have to worry about failure to file Soc Sec Self Employm - ugh. Calling IRS tomorrow to see what I need to do about that - I agree w/someone elses post that the IRS is actually really helpful when u call them.

Sales tax and income tax are two different beasts. Yes NY sales tax quarter is Sept 20.

Here's a quote from the IRS PDF (link in article above) General Rule 505, Tax Withholding and Estimated Tax. In most cases, you must pay estimated tax for 2012 if both of the following apply. 1. You expect to owe at least $1,000 in TAX for 2012, after subtracting your withholding and refundable credits. 2. You expect your withholding and refundable credits to be less than the smaller of: a. 90% of the tax to be shown on your 2012 tax return, or b. 100% of the tax shown on your 2011 tax return. after subtracting your withholding and refundable credits. There's lot more info of course - but new sellers and modest income sellers need to realize that the $1000 guide is talking about owing $1000 in taxes and not having $1000 in income (after expenses)

thanks for posting this! wish there were more articles for small business owners in other countries; i live in canada, and am having a heck of a time figuring out the minimum required to pay taxes! government jargon is very difficult to pick through. this article really clears things up for american friends...you're clarity is appreciated!

I was so happy using this application Outright.com. I downloaded it a few months ago and didn't really pay attention to it. I came home yesterday and finally assigned some categories like the shipping so it would match on both sides of the balance sheet. The folks there are fabulous. Who wants to do taxes? This makes everything so simple. Then I just go into each of my vendors and upload my invoices: the date, amount, and a invoice number in the description field and assign it to cost of goods sold. I get a better handle on everything than I ever have before since I can look at the numbers by month or by vendor or by expense/income. Then I just went and paid the IRS online. I just love the fact that someone is helping the small business owner with an easy point and click application. It is really helpful if you have a business like mine which is high volume with low dollar amount. I sound like an infomercial but I really truly detest this time of year. I just like working in the studio. I hope more artists and artisans take advantage of this affordable service so they can get control of their finances and feel same comfort and security I do.

VERY HELPFUL - I was just thinking about taxes, but not about having to pay them next week! Thank you for the information, I had no idea this was quarterly!

so confused and worried.....no sales, have expenses...so do I pay taxes on non-income?

When do you start paying taxes on your business mainly quarterly estimated taxes. I mean how long do you have to have the business going before you start paying quarterly taxes. For example if I were to start a shop today 02/19/13 do I have to file the taxes on the June 15 due date? Or do I wait to start filing those until April 15, 2014. This is really confusing me and I would really appreciate it if someone could clear that up for me. Thank you for taking the time to read :)