There’s still time to fill out your vouchers and run to the post office this afternoon if you haven’t already sent in your estimated tax payments. If you’ve done this before, you know the drill.
If you’re new to the whole estimated-tax-payment-thing, read on for answers to some basic questions.
What are estimated tax payments?
Estimated tax payments are payments toward the amount of tax you expect to owe for the year. Instead of paying the whole amount in April, there are four due dates for estimated tax payments: April 15, June 16, September 15, and January 15.
Who has to pay estimated tax payments?
The general rule is that if you expect to owe $1,000 or more in tax for the current year, after deducting taxes that were withheld from your paycheck, you’ll probably be required to make estimated tax payments.
If your only income comes from the wages your employer pays you, then you might have enough taxes withheld throughout the year to avoid the hassle of estimated payments. On the other hand, if you get income from sources that aren’t subject to withholding, like self-employment, brokerage accounts or rental properties that you own, you may owe more tax than your withholding will cover.
If I’m making estimated tax payments to the IRS, I should be good, right?
Maybe. If your state has an income tax (most do) then you could be required to make estimated tax payments to the state as well.
How do I know how much to pay for estimated tax payments?
The IRS has an estimated tax worksheet to help you calculate your payment amounts. If you’re not the do-it-yourself type, you can contact your CPA to schedule a tax planning appointment.
If you book a tax planning appointment with me, and we discover that you’ll need to make estimated tax payments, I’ll calculate the payment amounts for you and fill out the vouchers for you. That way, all you’ll have to do is mail the voucher with your payments before the due dates.
What happens if I don’t make estimated tax payments?
If you’re required to make estimated tax payments, and you don’t, you may have to pay a penalty on top of the tax you owe.