If you are self-employed, part of a sole proprietorship or corporation, you may be required to submit estimated tax payments to the federal government. Plan on also paying tax estimates if income from investments or from the sale of property are significant from any given year.
Although you can use last year's data as a guide, you'll need to adjust for changes in your business status and also changes in law in figuring out your estimated tax payments.
To help you make sense of it, consider the following information on prepayment of taxes:
1. For those who are self-employed, sole proprietors or part of an S corporation, if you expect to owe tax of $1,000 or more, you generally must pay estimated tax payments.
2. Corporations must only comply with estimated tax payment requirements if they expect to owe $500 or more on their annual return.
3. Estimated payments for tax incur on Jan. 15, April 15, June 15 and Sept. 15. Those are firm deadlines and you can be fined for not paying by the due date.
Seek advice on tax prepayment from an experienced professionalSince each situation is different and consequences are serious, it may be best to consult with an expert on your tax obligation. A certified public accountant or someone who specializes in taxes can inform you of whether you meet the criteria required for estimated tax payments.
Calculate your tax estimated paymentsHow do you know how much to pay? It's not just a guessing game. Use your previous year's history of income and earnings to help estimate the current year's tax burden. Utilize financial calculators and charts to help you determine how much of a tax pre-payment to send in.
State of California provides a chart on how much you should pay by percentage at certain deadlines throughout the year. Utilize the financial calculator from CCH to come up with an estimated tax payment.
Once you've got a figure, find out how to pre-pay taxesThere are several ways you can pay your estimated tax: by sending a check or money order with a payment voucher, paying electronically through the IRS, authorizing an electronic withdrawal through your bank, or by using a credit card via the Internet or by telephone. Also, an overpayment on the past year's return can be applied to the current year.
Internal Revenue Service's Electronic Federal Tax Payment System. Through Tax Form Processing, download Form 1040A.
- The IRS divides each year into four payment periods with payments due on specific dates within those periods. When figuring estimated payments for tax, aim high. If you don't pay enough in each of the pay periods, you can be assessed a penalty even if you show a refund at the end of the year.