Issue link: https://www.ascpskindeepdigital.com/i/108113
The Guessing Game Estimating taxes for your practice by Mark E. Battersby Tax time can be complicated for estheticians who run their own businesses. In contrast to employees who are paid set rates and have their taxes withheld from every paycheck, Uncle Sam demands that all business owners (including independent contractors) who expect to owe $500 or more in taxes must estimate how much As every esthetician knows, estimating future income can be daunting. This year also brings additional challenges: navigating recent changes to tax deductions, new health-care taxes, and the end of the once-temporary payroll tax cut. And, of course, failing to make timely and accurate tax payments can result in substantial penalties. Fortunately, the Internal Revenue Service (IRS) has guidelines that can help with figuring out your estimated tax bill, and even some so-called "safe harbors" that can substantially reduce the chance that you will pay penalties. $ income they will earn in the coming year, and make installment payments based on that estimated figure. Guesstimating Future Taxes The general rule is that at least 90 percent of the final tax bill must be paid through either withholding (for employees) or estimated tax payments (for business owners). Estimated tax includes income tax, selfemployment tax, and any other taxes reported on Form 1040 that you estimate will have to be paid this tax year. Incorporated businesses are required to pay their estimated tax bill in quarterly installments. Generally, each payment must be at least 25 percent of your total annual tax bill. These payments must be submitted direct to the IRS by electronic deposit. So how should a skin care professional estimate income for the coming year? It may seem that the simplest answer is to use the figure you earned last year. However, this may not be the path to an accurate estimate. In fact, large corporations (those with taxable income of at least $1 million in any of the three preceding years) are prohibited by law from using their prior year's tax bill as a basis for estimating the current one—and even though this method is available to small business owners, doing so will increase the odds that you will end the year with an inaccurate estimate and risk incurring penalties. Get connected to your peers @ www.skincareprofessionals.com 31