Making Estimated Tax Payments
One of the most common questions we’re asked by self-employed individuals is “should I make estimated tax payments and if so, how much?” Not everyone needs to make estimated tax payments. However, some taxpayers may need to depending on their income. Here are a few things to be aware of regarding estimated tax payments.
1. Generally, you may need to pay estimated taxes if you expect to owe $1,000 or more in taxes when you file your federal tax return.
2. If you do not have taxes withheld from your income, and expect to owe taxes at the end of the year, you may need to make estimated tax payments. This may apply if you have income such as self-employment, interest, dividends or capital gains. It could also apply if you do not have enough taxes withheld from your wages.
3. When figuring the amount of your estimated taxes, you should estimate the amount of income you expect to receive for the year. You should also include any tax deductions and credits that you will be eligible to claim. Be aware that life changes, such as a change in marital status or a child born during the year can affect your taxes.
4. You normally make estimated tax payments four times a year. The dates that apply to most people are April 15, June 17 and Sept. 16 in 2013, and Jan. 15, 2014.
5. You should use Form 1040-ES, Estimated Tax for Individuals, to figure your estimated tax. You can use the corresponding state tax forms to make state estimated tax payments.
6. You can pay your estimated taxes by mail, online or by phone. You’ll find more information about your payment options in the Form 1040-ES instructions. Also, check out the Electronic Payment Options Home Page at IRS.gov. If you mail your payments to the IRS, you should use the payment vouchers that come with Form 1040-ES.
As you might expect, the key to estimated tax payments is an accurate estimate of your tax liability so focus your time there and if you have questions, contact your tax professional. You can also see IRS Publication 505, Tax Withholding and Estimated Tax.
By: Evan A. Nielsen, Esq. (Licensed in California)