Here are four advantages of paying estimated taxes that help you save money and build your financial confidence.
Many taxpayers assume it is wiser to keep money in the pocket rather than send it off to the government each quarter. They tend to believe that the value of money intended for taxes can be enhanced when kept on the taxpayer’s side of the fence. However, comprehensive tax planning and the development of effective tax strategies are essential for wealth building, creating and maintaining a profitable business, and even meeting personal financial objectives. If you dislike paying taxes and think it is a burden, we hope that this article will change your mind and you will actually embrace paying estimated taxes.
Focusing on the benefits of paying estimated taxes will make your life and paperwork easier, and the primary beneficiaries will be you and your family. There are many solid advantages associated with the proper, timely, and regular payment of estimated taxes. If you’re currently paying estimated taxes, here are four reasons to be thankful for your proactive payments:
- Consistent engagement in more reliable budgeting
- Consistent engagement in more reliable tax planning
- Compliance with the law
- Avoidance of penalties and added interest
More Reliable Budgeting
One of the primary benefits of paying estimated taxes is that it allows you to engage in more reliable budgeting each year. Indeed, not only does paying tax estimates permits reliable short-term budgeting, but it is also crucial to developing long-term tax strategies, such as small business tax planning.
More Reliable Tax Planning
On a related note, paying estimated taxes in a timely and consistent manner will give you the opportunity for more reliable tax planning. The failure to pay an estimated tax obligation by the established deadline is apt to leave you scrambling to make up for the deficiency. You will find yourself involved in putting out proverbial tax fire and have neither the time nor the platform upon which you can undertake effective tax planning.
Meeting Your Legal Obligations
A real benefit associated with paying your estimated taxes is found in the fact that you are complying with the law. Plain and simple, you are doing what is legally required and fulfilling your civic duty. Therefore, an important component of tax planning and implementing meaningful tax strategies ensures that you proactively and consistently satisfy your legal obligations about paying estimated taxes.
Depending on the business type, the failure to meet legal obligations associated with taxation can have more wide-ranging, far-reaching consequences. For example, if a business enterprise involves a licensed professional, the failure to satisfy tax laws and regulations might impact negatively his professional license.
Tax problems stemming from a failure to file payments associated with tax estimates can send a negative message to customers or clients. This can include customers and clients among the general public. Moreover, it can include customers and clients in the business-to-business or B2B realm.
Avoid Costly Penalties
Another significant benefit to be derived from the timely, consistent payment of tax estimates is that you will avoid costly penalties. A surprising number of businesses, professionals, independent contractors, freelancers, and consultants slough off paying estimated taxes each quarter.
However, the reality on the ground is that interest and penalties can mount quickly within a very short amount of time. Thus, every year, enterprises and individuals that plot such a course find themselves in an untenable position with major problems associated with a failing to satisfy a tax estimate payment obligation.
As a side note, the IRS has become more aggressive in collecting penalties in this day and age. While there arguably was a time when the agency was somewhat lackadaisical in pursuing unpaid penalties, those days do appear to be a proverbial thing of the past.
Moreover, IRS interest and penalties are not something that you can merely erase away. For example, these types of assessments typically are not things that can be discharged in bankruptcy.
Limited Situations in Which Internal Revenue Service Might Wave Penalty
If a business, professional, independent contractor, freelancer, or consultant fails to pay estimated taxes when due, obtaining a waiver of a penalty imposed by the IRS is not going to be easy to come by. However, there is a set of limited circumstances affecting a business enterprise, when the IRS may consider waiving a penalty assessment imposed for failing to make a timely estimated tax payment, such as a fire, natural disaster, civil disturbances, etc.
An inability to obtain certain necessary records needed to prepare and process the payment of estimated taxes may also be a reason sufficient to obtain relief from a penalty assessment. Still, in this case, a taxpayer is required to demonstrate that a reasonable effort has been made to collect necessary documentation. The failure to obtain needed documentation typically must be something out of the taxpayer’s control seeking a penalty abatement.
Reasons that might prove sufficient to obtain a waiver of accrued penalties for failure to meet the estimated tax payment obligation include:
- Serious illness
- Avoidable absence
These scenarios can involve a taxpayer directly or personally. On the other hand, they might form the basis for a penalty abatement if one or another of these issues has impacted a taxpayers’ close family member.
Finally, some other reason might be sufficient to warrant an abatement or release of penalties associated with a failure to make a timely tax estimate payment. The circumstances surrounding the COVID-19 pandemic provide examples of when the “other reason” justification to penalty relief might come into play.
The stark reality is that the lockdowns, restrictions, and other limitations arising from the coronavirus pandemic had a severe and sudden impact on all types of businesses worldwide. Even businesses that strove mightily to keep things moving forward ran into fierce headwinds and simply found themselves facing financial or even dire fiscal straits.
Many American adults in the 21st century are concerned about their finances, taxes, retirement, and wealth planning and building for the future. Based on the discussed four benefits of paying estimated taxes, we can conclude that it’s crucial to plan ahead of time. Paying estimated taxes is a necessity for people who want to be financially free, build a retirement, and leave their family with financial security. In addition, these four benefits can have a more immediate but also a long-term positive impact on the overall operations and stature of a business enterprise.
If you want to further explore your specific tax situation further, feel free to call us and take our tax strategy and planning questionnaire. We are happy to discuss this with you at any time that is convenient for you. We, Krishnan and Associates will make sure you get the best strategy for your personal and business tax success, taking into account long-term wealth building goals and objectives.