All You Need to Know About Estimated Tax Payments
What are Estimated Tax Payments?
Estimated Tax Payments are pre-payments made in advance to the IRS for taxes due. These pre-payments are based on the estimated tax liability of of earned income. It should be assessed on taxable income, including self-employment income, interest income, dividend income, capital gains, and rental income.
Who should pay Estimated Tax Payments?
Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
You may have to pay estimated tax for the current year if your tax was more than zero in the prior year. See the worksheet in Form 1040-ES, Estimated Tax for Individuals, or Form 1120-W, Estimated Tax for Corporations, for more details on who must pay estimated tax.
How do you figure out your Estimated Tax Payments?
To figure out your estimated tax, yout need to figure your expected AGI (adjusted gross income), taxable income, deductions and credits for the year.
You can calculate your estimated tax payments in three easy steps:
- Calculate your AGI and taxable income:
Use your prior year's taxes as a guide as long as they're similar or the same as the year you're calculating. Use your prior's year income, deduction and credits as a base to calculate the pre-payments.
2. Estimate your income tax:
You can use the worksheet in Form 1040-ES to figure the estimated tax. You want to estimate your income as accurately as you can to avoid penalties. You must make adjustments both for changes in your own situation and for recent changes in the tax law..
3. Add and divide your Estimated Tax Payments:
Once you have calculated the total estimated tax for the year, divide that total by four (number of payments in a year).roses
Total Estimated Taxes / 4 = Total Estimated Payment
When are Estimated Tax Payments Due?
Estimated Tax Payments are due quarterly, four times each year.
Here are the deadlines for 2020's Estimated Tax Payments:
|Taxable Period||Estimated Tax Payment Deadline|
|Sept. 1 - Dec. 31, 2019||Jan. 15, 2020|
|Jan. 1 – Mar. 31, 2020||July 15|
|April 1 – May 31, 2020||July 15|
|June 1 – Aug. 31, 2020||Sept. 15|
|Sept. 1 – Dec. 31, 2020||Jan. 15, 2021|
What happen if you don't make your Estimated Tax Payment?
If yu don't make your estimated tax payments, you'll have a tax liability by the time you file your taxes. Additionally, you'll have to pay interest and penalties on the underpaid tax liability. the interest rate will apply fron the date the liabilty was incurred. If don't pay by the time you file your file your taxes, the IRS can impose a penalty of .5% per month on the unpaid amount.
You will not be assessed a penalty if:
- You owe less than $1,000
- Your estimated tax payments were greater than 90%, or, you paid 100% of your prior year liability, which ever is greater.
We Can Help
Filing taxes is a complicated task, even more so when you're self employed need to file taxes every quarter. We Have cover all you need to know about estimeted tax payments, however our tax specialists live and breath taxes everyday, and know all the tips, tricks, updates and changes in laws. They can help you file your quarterly taxes. Reach out to us if you have questions or if you help filing.