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Estimated Taxes Report

Last Updated: May 02, 2012 08:36AM PDT

Premium Feature: This is a premium feature and may not be available on all plans. To access this feature, please upgrade to a supporting plan.
 

 

About the Estimated Tax Report


WorkingPoint's Estimated Tax Report estimates your federal income and self-employment taxes based on IRS tax schedules for the current year, so you know how much you need to save for end of year taxes or for estimating your taxes for quarterly tax payments.


If you are a new business, you may not need to pay estimated quarterly taxes your first year of business. But you can use this report to see how much you may owe when April 15th rolls around. WorkingPoint will take your profit for the current year and apply the tax table for your filing status to come up with an estimate of your federal income and self-employment taxes. Save the estimated amount and you'll be ready to cut that check to the Feds come tax time, if necessary.


If you've been in business for more than a year and paid additional taxes when filing your Form 1040 to the IRS last year, you’re likely required to pay estimated quarterly income taxes for this year. This means that 4 times a year you pay an estimated amount to the IRS to cover your taxes for the year in advance of your annual filing. You can also choose to pay the estimate for the entire year if you pay it all by April 15. While this can seem like a drag to pay taxes "up front", it can actually be a help because as sole proprietors, we often forget to plan for our income taxes and then we find out too late that we owe a ton of money in taxes and we don't have it.


You can use the Estimated Tax Report to estimate your taxes for the year based on a profit amount you provide (such as from last year's tax return) or based on business activity you've recorded to-date in WorkingPoint.

Note: This report only estimates taxes and is intended to be used as a guide for cash flow planning only. The IRS Estimated Tax worksheet includes other deductions and calculations not included here. For Form 1040-ES and additional instructions on whether you are required to pay estimated quarterly taxes and how to calculate them, go to http://www.irs.gov/pub/irs-pdf/f1040es.pdf 

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Viewing the Estimated Tax Report


WorkingPoint's Estimated Tax Report estimates your federal income and self-employment taxes based on IRS tax schedules for the current year.


To view your estimated federal taxes:

  1. Click the Reports tab.

  2. Under Tax Reports, click Estimated Tax Report.


The current year's report will display automatically based on the default setting described in option 1 below. If this fits you, then you are good to go. If not, you can change how your taxes are estimated by selecting a new option, choosing your filing status and clicking Update Report.


There are 3 options for estimating taxes:

  1. Estimate based on profit to-date (as of today) with "I expect my current level of income and expenses to be consistent for the remainder of [current year]" check box checked

This is the report default: WorkingPoint displays this option automatically when you open the report. In this option, WorkingPoint will use your profit/loss to-date to annualize your profit/loss for the entire year (using the same rate of earning and spending) to determine your estimates taxes for the entire year.

This method allows new businesses who want to or are required to pay estimated tax payments and need to project their profit for the year. Since tahe first payment (or the full payment) is due April 15, you could run this report anytime prior to April 15 to see what you may earn for the entire year so you can figure how much your first payment should be or pay it all up front.  This method works for businesses who have steady levels of income and expenses.

  1. Estimate based on profit to-date (as of today)

Uncheck the "I expect my current level of income and expenses to be consistent for the remainder of [this year]" checkbox (leaving "Estimate based on my profit to-date" selected) and WorkingPoint will estimate your taxes for the year based only on your profit to-date.

This method is great for new businesses who had no tax liability for the prior year. It will result in calculating estimated taxes to-date and can serve as a guide so you know how much to save for taxes that may be due at the end of the year.

  1. Estimate based on a value you enter for total profit for the current year in the field provided

By choosing this method, you can enter any amount for your estimated profit and WorkingPoint will use that value to calculate your estimated taxes. This value may be based on your profit as reported on last year's tax reports or your income statement for last year. If you are a new business and haven't filed taxes yet, you can enter what you project you will earn in profit for the year based on your business plan financial projections.

This method is great for businesses who have paid taxes in the past and are required to pay taxes for the current year.


About Your Filing Status


No matter which option you choose, under Filing Status, select your filing status from the drop down menu and click Update Report to view the results.


This is the filing status you use on your IRS Form 1040 when filing your annual federal taxes. It determines which tax table WorkingPoint will use to calculate your estimated taxes.  For more information on IRS Form 1040 filing statuses, click here.

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Reading the Estimated Tax report


The Estimated Tax Report estimates your federal income and self-employment taxes based on IRS tax schedules for the current year.  
 

You can use the report to estimate quarterly estimated tax payments if you are required to pay them. You could also use the report to see how much you may owe in taxes at the end of the year based on your business activity to date and even ask WorkingPoint to project your profit based on what you have made so far.


Calculating Profit/Loss


There are 3 options for how WorkingPoint will calculate profit/loss:

  1. Estimate based on profit to-date (as of today) with "I expect my current level of income and expenses to be consistent for the remainder of [current year]" check box checked

By choosing this method, WorkingPoint will take the business activity recorded in WorkingPoint to-date and calculate your profit/loss to-date, and then use that figure to project what your profit/loss would be for the entire year based on the current rate of spending and earning you have done so far.

As equations, it looks like this:

[Revenue + Other Income] - [Cost of Sales + Expenses + Other Expenses] = Net Profit or Loss as  of Today

(365/current day in year) x Net Profit or Loss as  of Today = Projected Profit or Loss for Current Year

  1. Estimate based on profit to-date (as of today)

If you asked WorkingPoint to use your profit as of today to estimate your taxes, WorkingPoint will take the income you have made for the year, that is, anything recorded to a Revenue or Other Income account, and subtract your expenses, that is, anything that has been recorded as Cost of Sales or Expense, to figure your Net Profit or Loss for Current Year.

As an equation, it looks like this:

[Revenue + Other Income] - [Cost of Sales + Expenses + Other Expenses] = Net Profit or Loss for Current Year

  1. Estimate based on a value you enter for total profit for the current year in the field provided


By choosing this method, you can enter any amount for your estimated profit and WorkingPoint will use that value to calculate your estimated taxes. This value can be found by running an income statement for last year or by referring to the prior year's adjusted gross income from your tax return.


Estimating Federal Taxes


Using the Net Profit and Loss for the Current Year and your filing status (as selected on the report), WorkingPoint applies the current year's tax tables as published by the IRS to calculate your self-employment taxes and your Federal income taxes then adds them together to get your total estimated federal taxes owed for the current year.


As equations, it looks like this:

  1. Net Profit and Loss for Current Year x IRS Tax Rates for Self-employment taxes = Self-employment tax

  2. Net Profit and Loss for Current Year x IRS Tax Rates for Income taxes = Income tax

  3. Self-employment tax + Income Tax = Total Estimated Federal Taxes Owed for Current Year


Payment Due Dates


If you are required to pay estimated quarterly taxes, the IRS has set the dates that payments are due by. We have listed the payment due dates on the report. You may pay all of your estimated tax by April 15, for the current year or in four equal amounts by the dates shown below. However, you can make more than four estimated tax payments if you want.

  • 1st payment - April 15

  • 2nd payment - June 15

  • 3rd payment - Sept. 15

  • 4th payment - Jan. 15*


* You do not have to make the payment due January 15, if you file your tax return by February 1, and pay the entire balance due with your return.

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