This tax season, you’ll want to know just what sort of taxpayer you are. Most income earners are employees, and a portion of their income is sent off to the IRS with each paycheck earned.
Who Must Pay Estimated Taxes?
The following individuals and entities are required to pay estimated taxes throughout the year:
- Anyone who will owe a tax of $1,000 or more after filing taxes.
- Corporations that will owe a tax of $500 or more after filing taxes.
- Anyone whose refund and income tax withholdings will cover less than 100% of their tax liability from the previous year or 90% of their tax liability for the current filing year. This is decided by whichever tax liability amount is smaller. Note: The cap here is 110%, which translates to $75,000 for singles or $150,000 for married couples who have filed jointly.
What Are Estimated Taxes?
Estimated taxes are not withheld automatically and taxpayers can pay them in four equal installments throughout the year, but may also pay in four different installments as long as the total amount is the same.
Figuring out these estimations can be determined in the following ways:
- Taking what you owed the previous year and dividing that by four.
- Estimating your total earnings based on your current earnings for the year and then calculating what you might owe.
From there, taxpayers should move on to fill out tax form 1040-ES.
If your taxes aren’t as doable for you on your own, remember professionals may be able to find a few cutbacks so that your quarterly taxes decrease.
Can a Full Payment Be Made at the End of the Year Instead of Quarterly Payments?
The short answer is, you can — but in reality, you shouldn’t. Even when splitting up the final amount into unequal sums, you may face an underpayment penalty. Certain inequalities may occur if, say, you make a surprisingly different amount in a later quarter. But it’s best to aim for equal quarterly payments. To ensure that you avoid any underpayment penalties, the IRS has got your bases covered. Publication 505 is always there to explain any intricacies and complications you might encounter.
What must you Do If you cannot Afford Your Payments?
Life is stuffed with surprises that none people will predict. A death within the family, loss of home, or a newborn on the manner — such a lot of things will derail our lives and have an effect on our money stability. In the event you find yourself unable to pay your estimated taxes, you might consider some alternatives. For example, you can finance your payments, get a credit card, sign up for a payment plan via the IRS, or consider the IRS Fresh Start Tax Relief Program.
Again, determining whether you need to pay estimated taxes is the first step. The self-employed are prime candidates for paying estimated taxes. From there, aim to pay in equal quarterly installments and get professional assistance if needed.