You file a federal income tax return annually, but the federal income tax system is a pay-as-you-go system. There are two methods for paying-as-you-go: withholding and estimated tax. Refer to Publication 505, Tax Withholding and Estimated Tax.
If your business is a sole proprietorship or an unincorporated single-member LLC with you as the sole owner, the income is attributable to you and must be reported on your individual income tax return. If your business is a partnership, an unincorporated multi-member LLC, or an S corporation, the ordinary business income passes through to the partners, members or shareholder(s) and is attributable to them and must be reported on their personal income tax returns.
If you owe more tax at the end of the year after taking into account any withholding on other income, deductions, and credits, you may have to pay an underpayment penalty. You should make quarterly estimated tax payments and/or increase the withholding on other income subject to withholding.
Form 1040-ES, Estimated Tax for Individuals includes instructions to assist you in determining if you need to make estimated tax payments, provides their due dates and explains how to pay them. You can also use our online tool, Am I required to make estimated tax payments?
When you file your individual income tax return each year:
- Include the income from the business on your Form 1040, U.S. Individual Income Tax Return and the appropriate schedule(s): Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship); Schedule E (Form 1040), Supplemental Income and Loss; and/or Schedule SE (Form 1040), Self-Employment Tax.
- If you made estimated tax payments during the year, report them on your individual income tax return as a payment.
Generally, all other corporations must make installment payments if they expect their estimated tax for the year to be $500 or more.
Entities which do not pay estimated tax installments when they are due may be subject to an underpayment penalty (estimated tax penalty). For more information, see the related instructions for the income tax form filed.