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Estimated IRS Taxes

Whether you’re a W2 employee or 1099 income-earner, the chances are good that you’ll have to pay taxes. How much? That’s certainly the million-dollar question (no pun intended). While an employee has most or all her taxes withheld from her paycheck, a 1099 income-earner must send in estimated tax payments.

The annual deadline to file a tax return is also the deadline for payment. Taxpayers either receive a refund or must send in a payment as a result of tax return preparation.

Both are determined by how much tax was paid during the year through withholdings or estimated tax payments. The taxpayer and IRS essentially “square up” for that year with the filing of a tax return.

Who Pays Estimated Taxes?

As has been noted above, the law requires employers to withhold income and other taxes from their employees’ paychecks. Employees submit a W4 tax form to their employer, which informs them how much to withhold.

If the employee doesn’t have their employer withhold income taxes from their paychecks, then he should send additional payments to the IRS throughout the year.

Self-employed taxpayers who anticipate owing more than $1,000 for the year must make estimated tax payments. That’s because clients and customers don’t withhold taxes for them. Corporations must also make estimated tax payments if they anticipate owing more than $500 for the year.

The IRS points out that you don’t have to make estimated tax payments during the year if you’re a U.S. citizen. The same goes if you lived in the country throughout the year and owed no taxes the previous year. However, keep in mind that these only apply if your previous tax year duration was 12 months.

Calculating Appropriate Estimated Taxes

Determining how much tax to pay during the year relies on a reasonably anticipated adjusted gross income. It also considers the anticipated taxable income, tax liability, deductions, and credits for the end of the current year. Refer to the income tax return you filed the previous year for this information.

The IRS understands that anticipating income is a lot like predicting the future, which is relatively difficult for most taxpayers. On the positive side, you don’t have to commit to one payment amount for the year.

If your estimations prove inaccurate as the year progresses, simply adjust your calculations. Just remember to inform the IRS of the updated calculations. Diligence in estimated tax payment calculations is critical to avoid costly penalties.

Remember to carefully consider significant changes within your business, as well as any changes or updates in the current tax law. If you’re not comfortable with calculating your own tax payments, you’re not alone. Consider hiring a trusted tax expert to determine the appropriate tax payments for you.

Unpayment of Estimated Tax Penalty

If you submit estimated tax payments to the IRS during the year that are too low, then the IRS will likely assess a monetary penalty. That is, if you owe $1,000 or more when the return is filed.

You can avoid the penalty if you paid at least 90 percent of the total due. You can also avoid it if you paid at least as much as the total tax liability of the previous year. Other rules apply for farmers and fishermen.

If income is irregular throughout the year, you can avoid or reduce the penalty by making unequal payments. In other words, you can make bigger tax payments if business is good or lower ones if business is slow.

The IRS considers waiving the penalty for inadequate estimated tax payments for taxpayers in particular circumstances. Some of these circumstances include:

  • You retired after age 62
  • A disability during the current or previous year stopped you from making payments, or
  • An extraordinary event prevented you from making payments.

An extraordinary event could be an extended hospital-stay or a death in the taxpayer’s immediate family, for example.

When to Make Estimated Tax Payments

The IRS accepts estimated tax payments by mail or phone, as well as through an online portal. Taxpayers need to make payments on their tax liability at least four times per year. The Electronic Federal Tax Payment System gives taxpayers access to an easy payment process. In fact, the easy payment process is appropriate for all other federal tax payments, as well. Go here to learn more.

The first estimated tax payment is due on April 15 for income that you receive between January 1 and March 31. For the time period of April 1 through May 31, the IRS must receive payments by June 15. September 15 is the due date for income you receive between June 1 and August 31. Finally, taxpayers have until January 15 of the following year to send the payment for income received between September 1 and December 31.

Need Help?

Accurately calculating and submitting timely estimated tax payments is a critical component of a taxpayer’s obligation. Consider hiring a professional tax representative to determine how much your estimated tax payments should be.

Tax professionals have their finger on the pulse of ever-changing tax law. In fact, they have a unique ability to calculate estimated taxes with a wide variety of financial circumstances. Each occupation must abide by the tax law designed for its particular nuances. In general, that often includes applying the appropriate tax rate for your income bracket.

Why Tax Champions?

At Tax Champions, we have over 35 years of experience with the ever-changing tax code and IRS procedures. Our credentialed staff is committed to your financial well-being. We strive to meet and exceed our clients’ expectations every day.

Therefore, our estimated tax services are second to none. In fact, hiring our trusted tax experts to make sure you’re sending in the right payments is a prudent choice. While the task may seem daunting to someone who doesn’t work with taxes regularly, it’s not to us. We work with tax issues on a daily basis all year around.

Contact us today for a free, no-obligation consultation to see if our services are a good fit for your needs. Our staff is available at 800.518.8964 during standard business hours, as well as evenings and weekends for your convenience.

If you prefer, we’re happy to reach out to you as well; just enter your contact information into the blue text box on the right side of this page.

We work with clients across the United States from coast to coast and beyond. Many of our clients live and work abroad. We’re the right firm for your case no matter your circumstances. We proudly have staff with all levels of authority with the IRS. The IRS implements no restrictions on taxpayers that hire our firm.

Sleep better tonight knowing that you have a knowledgeable and reputable team of trusted tax professionals working for you. We’re committed to establishing and safeguarding your good standing with the IRS. Above all, we hope that you’ll choose Tax Champions for all your tax needs in the future. Call today!

Sources

[1] Estimated Taxes. (2019, June 3).  Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

[2] Here's how and when to pay estimated taxes. (2019, September 6). Retrieved from //www.irs.gov/newsroom/heres-how-and-when-to-pay-estimated-taxes

[3] IRS waives penalty for many whose tax withholding and estimated tax payments fell short in 2018. (2019, June 28). Retrieved from //www.irs.gov/newsroom/irs-waives-penalty-for-many-whose-tax-withholding-and-estimated-tax-payments-fell-short-in-2018

 

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Walter Wotman, CPA

Founder & Managing Partner

Walter Wotman, CPA is the author of "Tax Champions Guide to Tax Resolution." Amazon #1 Best Seller in the Personal Finance category. He is one of America's most experienced tax negotiators with over 35 years of experience helping thousands of clients settle difficult back tax issues.

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