No, I’m not pregnant. Neither is my wife.
This isn’t about human babies at all, in fact.
We’re talking about business stuff, in this case the final one-third of 2021.
September through December = 4 months = the third trimester.
I started exploring this idea earlier this past week.
The last full month of summer under our belts. Many of us live in places where the leaves are starting to turn a little.
Business-wise, fiscally speaking, I started exploring the idea of benchmarking the end of August and the beginning of September.
Think about this…for many of us, taking stock of our revenues and expenses now makes perfect sense, because we self-employed entrepreneurs have a tax deadline in mid-September anyway.
The third quarter Estimated Tax payment is due September 15th.
Quick side thought, let me ask you something here: have you wondered why I always capitalize Estimated Tax?
It’s kind of a proper noun, but kinda not really, too?
In my case, and for these writings, I’m attaching it proper significance because it needs to be taken seriously.
We entrepreneurs are basically trusted to pay as we go toward our annual income tax every year, but we’re only asked to do it four times.
The 15th day of April, June, September, and the following January.
You don’t HAVE to, necessarily, but you want to because it’s logical to pay as you go as opposed to having to come up with all of it at once next April, but also…
…because the IRS penalizes you for not doing it, assuming you over $1,000 in tax for the year.
So, in a way, you DO kinda have to, after all.
$1,000 in tax can happen at a relatively low income, especially if you’re single (because of the lower standard deduction), right?
Now, you see that? I got up on my Estimated Tax soapbox again!
It doesn’t take much!
Let’s talk about what the heck to do about it, knowing as you do now that two-thirds (2/3) of the year has elapsed.
Easy math. Look at your profit & loss statement for January through August. That’s 8 months.
Multiply the NET INCOME by 1.5, and you have your estimated income for the year.
(Math nerds: multiplying by 3/2 is the same as dividing by 2/3. It works!).
Figure the tax on that. We do this for our clients all the time, but if you’re good at “The Google Machine,” and find the right online calculator it’s possible for non-accountants with a nerdy predisposition to do.
Got your tax number? Great! Subtract the amount(s) you already paid in April and June, divide by 2, and send that in.
You can round it up to a whole “tens” amount, such as $790 even, if you like. It IS an estimate, after all!
You divide by 2 of course because there’s one more ES payment deadline, on January 15th, 2022.
When you’re figuring your tax make sure you figure the child tax credits if you have a kid or kids, as well as other forms of income.
If your significant honey has a job, you need his or her income AND federal withholding to-date, also.
Or, you can just figure it based on your SE income, but it is a little less accurate.
If you make even just the last two ES payments in September and January (common for people in their first year in business) you’re going to be better off than doing nothing, come next April.
Do it!
Your 1040 should say less than $1,000 on the balance due line when you file it. That’s winning at the Form 1040 game, in our most humble opinion.
And the end of August, the second trimester, is the perfect time to take stock of what you’ve done so far.
The next four months each have a major holiday, even though nobody has ever bought anyone a Labor Day card.
As far as I know, anyway…
But it’s a great time of year – fall colors, cooler temperatures, kids back in school and good family times the last six weeks of the year.
Now is an excellent milepost to pull over, take a look at the business, and decide where you want to end up by December 31st.
We want to wish everyone a happy Third Trimester, and a safe and relaxing Labor Day.
Even if it does have an oxymoron name. Right? Isn’t the point to NOT labor?
Be happy, relax, and have an incredible rest of your long weekend!