Paying Estimated Taxes

When you have your own eBay business, the IRS wants to collect your tax dollars as the year progresses, rather than waiting for you to pay the whole tab on April 15. That’s why any eBay owner who must pay more than $1,000 in taxes in any calendar year must pay estimated taxes. If you are operating a sole proprietorship, for example, your estimated taxes would be calculated on your estimated annual income and paid in four installments over the course of each year. These payments must include both estimated income tax and estimated self-employment taxes.

Estimated Tax Payment Schedule

Income ReceivedEstimated Tax
January 1 through March 31April 15
April 1 through May 31June 15
June 1 through August 31September 15
September 1 through December 31January 15 of the following year

You don’t have to pay estimated taxes until you earn some income. For example, if your eBay business doesn’t bring in any income by March 31, you don’t have to make an estimated tax payment on April 15.

Not everyone has to pay estimated taxes. You don’t if any of the following are true:

  • You expect to owe less than $1,000 in federal tax for the year.

  • You paid no taxes last year, if you were a U.S. citizen and your tax return covered the full 12-month period.

  • Your business is a C corporation and you receive dividends or distributions of profits from your corporation on which you will owe less than $500 in tax for the year. (Assuming that the corporation is paying payroll taxes on your salary, you don’t have to pay estimated taxes on salary you receive from your corporation; instead, you report that income and pay tax on it annually, on your personal tax return.)

But even if you don’t have to pay estimated taxes, you might want to do it, anyway. Paying estimated taxes spreads your tax bill over the entire year, so you won’t have to come up with all of the money at once. On the other hand, as long as you really have enough socked away to cover your bill, paying it later and all at once will give you the benefit of that money — and its interest-earning power — for a longer period of time.

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