Estimated tax payments are a method used to pay tax on income that is not subject to withholding. Normally, a taxpayer collects W-2 wages, such as a salary, where estimated taxes are automatically taken out in the form of withholding. As the taxpayer earns their salary, money is set aside to cover their tax liability. In this situation, no estimated tax payments are required. Most business owners such as Domino’s Franchisees, however, must make estimated tax payments to cover the profit earned by their business. In order to be a Domino’s Franchisee, you must own at least 51% of the entity that holds the Domino’s store. Typically, we recommend a Domino’s Franchisee to set up an S-Corporation. All profit from an S-Corp is reported on the Franchisee’s personal tax return. If a taxpayer does not pay enough tax to cover the Estimated Tax Penalty Safe Harbor (explained below), the underpayment of estimated taxes due may result in an assessed penalty and interest.
The four installment payments typically fall on the following due dates:
An estimated tax penalty will not apply if either of the following amounts are paid through withholding or timely estimated tax payments for the current tax year:
The IRS will waive the penalty for underpayment of estimated tax if:
Underpayment penalty for the fourth installment does not apply if the tax return is filed and balance paid in full by January 31.
Tax payment alternatives that can extend the time to pay:
Estimated tax payments are a method used to pay tax on income that is not subject to withholding. Most business owners, such as Domino’s Franchisees, must make estimated tax payments to cover the profit earned by their business and avoid underpayment penalties and interest. You have a lot on your peel, let us at D & S Management Services handle calculating your estimated tax payments and all you accounting needs.