Ten years ago, business lawyer Nina Kaufman went from running her own shop to joining a limited-liability partnership. She was thrilled…until April 15 arrived, and with it, a $20,000 tax bill.
Turns out, she should have been paying quarterly estimated taxes—something her accountant had never mentioned. If you got a similar shock this past tax season, here’s what to do:
If you’re self-employed—i.e. you file a Schedule C with your 1040; are part of an LLP; or have an LLC—set aside a third of your earnings into a separate account for estimated quarterly tax payments, says CPA Barry Newman.
If you have an S-Corp or C-Corp, you should be drawing a salary from it, with the tax withheld.
A tax accountant can advise you which of type of company is most advantageous, given your business.
When interviewing accountants, ask if they have a procedure for proactively checking in with you to discuss what’s changed, what’s expected, and how that affects the quarterly taxes you need to pay, Kaufman advises.
She suggests hiring a tax adviser, not a tax preparer: someone who will help your business grow, not just do paperwork once a year.
Her $20,000 lesson is yours for free.