Estimated Taxes

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.

 

 

HOW TO PAY ESTIMATED TAXES

 

If you are filing as a sole proprietor, partner, S corporation shareholder and/or a self-employed individual, you should use Form 1040 ES-to figure and pay your estimated tax.

 

WHO MUST PAY ESTIMATED TAXES

 

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

WHO DOES NOT HAVE TO PAY ESTIMATED TAXES

If you are an employee you can avoid making estimated taxes payment by requesting the employer to withhold more taxes from the paycheck .

If you do not have tax liability you do not have to make estimated payments.

HOW TO FIGURE ESTIMATED TAXES

To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year

Also you can start with the prior year return and adjust the income and expenses based on the current year projection  and figure the projected taxable income .

WHEN TO PAY ESTIMATED TAXES

 

For estimated tax purposes, the year is divided into four payment periods.. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

UNDER PAYMENT OF ESTIMATED TAXES

If you did not pay enough tax throughout the year you may have to pay a penalty for underpayment of estimated tax. Most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. Special rules are applicable for farmers and fisherman .