Quarterly Estimated Tax Payments
Quarterly estimated tax payments are payments made to the IRS and, in some cases, to state tax authorities, on a quarterly basis to cover your tax liability for the year. These payments are typically required for individuals and businesses that do not have taxes withheld from their income, such as self-employed individuals, freelancers, and business owners. Here are the key points about quarterly estimated tax payments:
Who Needs to Make Quarterly Estimated Tax Payments?
•Self-Employed Individuals: If you earn income from freelancing, consulting, or running your own business, you likely need to make estimated tax payments.
•Independent Contractors: If you’re an independent contractor without tax withholdings from your income.
•Landlords and Investors: If you earn significant rental income or investment income without withholdings.
•Corporations: Corporations generally need to make estimated tax payments if they expect to owe $500 or more in taxes when their return is filed.
•Individuals with Significant Other Income: This includes income from dividends, interest, capital gains, alimony, and prizes.
How to Calculate Estimated Tax Payments
1. Estimate Your Taxable Income: Calculate your expected income for the year, including wages, self-employment income, dividends, interest, and other sources.
2. Calculate Your Tax Liability: Use the current year’s tax rates to estimate your total tax liability.
3. Subtract Withholdings and Credits: Deduct any tax withholdings and tax credits from your estimated tax liability.
4. Divide by Four: Divide the remaining amount by four to determine your quarterly estimated tax payments.
When to Make Quarterly Estimated Tax Payments
The due dates for quarterly estimated tax payments are:
•First Quarter: April 15
•Second Quarter: June 15
•Third Quarter: September 15
•Fourth Quarter: January 15 of the following year
If the due date falls on a weekend or holiday, the payment is due the next business day.
How to Make Estimated Tax Payments
•Online Payments: You can make payments using the IRS’s Electronic Federal Tax Payment System (EFTPS) or through Direct Pay on the IRS website.
•By Mail: You can send a check or money order with Form 1040-ES to the appropriate IRS address.
•Through Your Tax Software: Many tax preparation software programs allow you to schedule estimated tax payments.
Penalties for Underpayment
If you do not pay enough tax throughout the year, you may be subject to an underpayment penalty. The IRS typically expects that you will pay at least 90% of your current year’s tax liability or 100% of the previous year’s tax liability (110% for higher-income taxpayers) to avoid penalties.
Silicon Harbor Business Services is based in Mount Pleasant, SC. We provide solid, practical advice to small business owners and select individuals. We work with Quickbooks Online, Quickbooks Desktop and Quickbooks Enterprise.
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