(BPT) - Terrance Williams always had an interest in fashion design. But a passion sparked when his sister gave him his first sewing machine for Christmas in 2010. He taught himself how to sew, first making pillows and blankets, then clothing and accessories. Terrance specifically wanted to create ethical and sustainable items but had trouble finding anything he liked. In 2014, he took matters into his own hands and brought his imagined ideas to life.
He initially sold his creations on Etsy, then officially launched his small business, Terrance Williams Designs. Growth was slow in the first few years, but the business took off in 2020. Hand-in-hand with the excitement of becoming profitable came uncertainty around how to best manage the business moving forward.
“My business literally grew overnight, so all the financial aspects of running a business were a surprise for me, because I had to expand very quickly to keep up,” Terrance said. “The expenses every month are overwhelming! Shipping, fabric, packing supplies, software and social media, photo editing apps — it all adds up. And, of course, taxes! Financial success also comes with financial responsibility.”
He received advice from some small business owner friends to set aside money for taxes, but he didn’t know how much to save for taxes or what they needed to cover.
“I was walking past a Block Advisors office on my way to the dentist one day and something told me to stop in and ask about my taxes — and I’m so glad that I did,” Terrance said. “This was my first year filing taxes as a small business owner, so everything was truly brand new for me. I had no idea what quarterly estimated taxes were until my new tax advisor, Mary Zaby, took the time to teach me what I needed to know.”
This allowed Terrance more peace of mind and time to focus on what he loves most about his business — the creations, not the taxes.
“Small business taxes are complicated, but Mary explained them in a clear and concise way,” he explained. “She also helped me set up my quarterly estimated tax payments based on my projected income and expenses for the year. Because I’m working with Mary, I know I’m in good shape.”
Quarterly estimated taxes can come as a surprise
While most people file their taxes once a year and cross it off their to-do list with relief, self-employed individuals and small business owners don’t typically get that luxury. If you’ve left your 9-to-5 job and started a new venture to pay the bills, there are more bills that may come as a surprise: your quarterly estimated tax payments. Quarterly filing dates are generally April 15, June 15, September 15 and January 15, which means the next one in 2021 is quickly approaching.
While Terrance had a jump-start on his small business before 2020, the pandemic forced many others to rethink traditional working models and strike out on their own. According to the US Census Bureau, new business applications were the highest on record last year, up 24% from 2019. If you’re self-employed, own a small business, or are making income but not having income taxes automatically withheld (as you would from a typical employer), you’ll likely need to make quarterly estimated tax payments throughout the year. This “pay-as-you-go” system means you need to pay most of your tax during the year, as you earn your income, rather than paying it at the end of the year.
Unfortunately, this is something many newly self-employed and small business owners learn the hard way after getting another surprise: an unusually large tax bill at the end of the year (full of interest and late payment penalties). In fact, 59% of self-employed individuals fail to file quarterly taxes, according to a 2018 survey from the mileage-and-receipt tracking app Everlance. They either don’t think they need to pay quarterly estimated taxes (42%) or don’t know what quarterly estimated taxes are (17%).
Seek expert help from the start
Luckily, Terrance sought small business tax help from the start — thanks to an advantageous dentist appointment. Since most small business owners start their business to pursue a passion, not to crunch numbers, it’s easy to make beginner’s mistakes like not knowing about or forgetting to pay quarterly estimated taxes. Also, small business taxes can be confusing and overwhelming, especially if you’ve never done them before.
“There’s so much to consider when you start a business or work for yourself,” said Ian Hardman, General Manager and Vice President of small business at H&R Block. “Working with a Block Advisors small business certified tax professional will allow you to focus on the things you love instead of your taxes. Our Quarterly Tax Payment Service helps you better manage your cash flow through precise quarterly tax payments.”
Terrance also recommends other up-and-coming entrepreneurs consult a tax pro.
“Definitely seek expert assistance and guidance before trying to do your small business taxes by yourself,” Terrance said. “My tax advisor, Mary, is extremely knowledgeable about small businesses and small business taxes and is super supportive of both me and my business. She helped me so much this year, but I also know she’ll help me as my business continues to grow. Any time I have an issue or concern, Mary is there with an answer.”
To learn more about calculating and paying your quarterly estimated taxes, or to start working with a Block Advisors small business certified tax professional, visit blockadvisors.com.