Do you need to make Quarterly Estimated Tax Payments?
Here’s the What, Who, When, Why and How
What is Estimated Tax?
Who Needs to Pay Estimated Tax?
- 90% of the tax shown on your 2016 return, or
- 100%* of the tax shown on your 2015 tax return.
When are Estimated Tax Payments due?
Here’s the four deadlines:
Note that the IRS calendar is a bit ‘wonky’. The four ‘quarterly’ deadlines aren’t all exactly 3 months apart from each other!
Why are they called “Estimated” Taxes?
How to calculate “Estimated” Taxes
IRS Form 1040-ES (Estimated Tax For Individuals) is used to calculate and pay estimated tax.
To determine how much you have to pay for estimated tax, you must compile your income, deductions, credits, and paid taxes — much like filing a yearly tax return. Most people can look at their income/liability numbers from the previous year to gauge what they’ll owe the next year.
ANCHOR ON THIS: Remember that it is important to submit your tax payments on time. Even if you’ve already missed a few installments for estimated tax, you should still try to pay them as soon as possible, for two reasons: (1.) you’ll avoid IRS penalties, and (2.) more importantly, you’ll gain peace of mind knowing exactly what tax is (or is not!) due, and have a game plan in place for meeting IRS requirements. Time and again in working with taxpayers I discover that the actual requirements are less than what a client had feared. But they’d never know this had they not sat down and worked through the details at some point during the year, rather than waiting and wondering till April 15th of the following year.
If you’d like help determining what your net income is in your business, or what your taxable income will be on your rental, alimony, social security income, etc, contact me for a complimentary consultation.