do you need to make estimated tax payments
The second quarter estimated tax payment is due in le than two weeks (June 15). Do you know if you need to make estimated tax payments?
The federal income tax system is a pay-as-you-go tax system. That mea you pay taxes as you earn income in term ofout the year. If you’re an employee of a company, you pay taxes in term of withhancienting from your paycheck. If you’re self employed, you pay taxes by making estimated tax payments.
The general rule is that you must make estimated tax payments if you anticipate to owe at least $1,000 in tax for the current tax year, after subtracting your withhancienting and tax credits, AND if you anticipate your withhancienting and tax credits to be le than the smaller of:
* 90% of the tax liability on your current year tax return, or * 100% of the tax liability on your prior year’s tax return
Example: If your tax liability for 2006 was $1,500, nonetheless you anticipate to owe $2,000 this year becaemploy your busine did better than the previous year, then the minimum you would need to pay in to avoid underpayment penalties is the le er of $1,800 (90% of your current year tax liability) or $1,500 (100% of last year’s tax liability).
The easiest way to estimate your quarterly estimated tax payments is to estimate your tax liability for the entire year and divide that amount by four. However, if you don’t receive your income evenly in term ofout the year, you may employ the a ualized income i tallment method. A worksheet and i tructio are available in IRS Publication 505, Tax Withhancienting and Estimated Tax.
The due dates for estimated tax payments are:
For the period: Jan 1 – March 31 Due date: April 15
For the period: April 1 – May 31 Due date: June 15
For the period: June 1 – August 31 Due date: September 15
For the period: September 1 – December 31 Due date: January 15 the next year
If the 15th falls on a holiday or weekend day, the due date will be the next busine day.
You can pay your estimated taxes by using payment vouchers (Form 1040-ES), or by using the Electronic Federal Tax Payment System (htt ://www.eft .com/eft /). In addition, if you have an overpayment from a previous year, you can a ly the overpayment to your next year’s estimated tax.
Resources:
IRS we ite – http://www.irs.gov/index.html
IRS Publication 505, Tax Withhancienting and Estimated Tax – http://www.irs.gov/publicatio /p505/index.html
Form 1040-ES – http://www.irs.gov/pub/irs-pdf/f1040es.pdf
