Tax FAQ Series: How Do I Figure Out My Estimated Tax Payments?

Q: How do I figure out my estimated tax payments?

Estimating taxes begins with estimating your income. Look at all potential sources of income you expect to receive during the year. Then determine all deductions and exemptions, including any costs of generating the income received (so long as the expenses/costs are deductible). The difference will be an estimate of your Adjusted Gross Income. Then subtract any other allowable reductions in income (contributions to retirement plans, cost of self-employed health insurance, student loan interest, etc.) What’s left is an estimate of your taxable income. Now look at the tax tables to determine your tax bracket and corresponding tax rate. Multiply your estimated taxable income by the tax rate and you’ll have an estimate of your tax liability. If you have sources of income (like W-2 wages) that already withhold income tax, subtract the withholding amount from your estimated tax liability. Then divide what’s left by four (and add a little to be conservative). The result will be the estimated tax payment you’ll want to make on each of the deadline dates (April 15th, June 15th, September 15th, and January 15th).

We can also provide a tax estimate analysis if you need assistance.

Here’s a link to a Tax Withholding Calculator provided by the IRS that may help:
https://www.irs.gov/individuals/irs-withholding-calculator

And here’s a link to the details the IRS provides regarding Estimated Taxes that may also be helpful:

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

If you have more questions about your estimated tax payments, give us a call at (480) 888-7111 to schedule your free consultation!