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How to estimate quarterly tax payments

how to estimate quarterly tax payments

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Determine the loan amount. Your loan amount is also referred to as your principal. Example: If the bank lends you $10,000 to start a business, your principal is $10,000.

Know the term of the loan. The term of the loan is the period of time in which the loan will be in force. Example: If the bank requires you to repay the entire loan within five years, the term of your loan is five years.

Get the interest amount, if applicable. Automobile, home or business loans generally have interest attached. Typically, these loans are amortized—the interest rate is included in your periodic installments over the loan term. Example: If your total interest rate is 7 percent of a $10,000 loan, your total interest amount is $700, which will be added to your periodic payment amount.

When calculating your interest amount, separate the annual interest from the total interest, if necessary. Example: If the annual interest on a $10,000 loan is 7 percent and the term of the loan is five years, your total interest amount will be $700 x 5 = $3,500.

Add your interest rate to your principal then divide the total by four. Example: Your principal is $10,000 and your total interest is $700, calculate as follows to arrive at your quarterly payments:

$10,000 + $700 = $10,700 / 4 = $2,675 = quarterly payments.

Note that you will be making four payments each year because quarterly payments occur every three months. Since there are 12 months in a calendar year, you would divide three months into 12 months to arrive at four months, which is the frequency of your quarterly payments.

Category: Bank

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