What are Quarterly Estimated Tax Payments?
How would you feel if you got stuck paying a fee to the IRS even though you paid your taxes every single year? This happens to many people who failed to make estimated payments. Regardless of how you earn income, you have to pay your taxes during the whole year and not just in the first quarter of the next calendar period. If you don’t have some of your money withheld by your employer, then you’re going to get stuck with a lump sum when you file your income tax return. When that happens, the IRS will stick you with a penalty that will ruin your day.
Making regular quarterly estimated tax payments is a good way to avoid this problem. Estimated tax can cover all income that isn’t subject to withholding. It’s a solid payment method for the money you make in any of the following ways:
- Rent you collect
- Alimony checks
In some cases, you might be subject to a voluntary withholding program. If you’d don’t elect to take advantage of this opportunity, then you’ll want to make estimated tax payments on any other money you have coming in.
Calculating what you should be handing over to the IRS isn’t all that complicated.
Figuring Out Quarterly Payments
To find out how much your federal quarterly estimated tax payments should be, you’ll have to estimate your adjusted gross income. Once you do, you’ll be in a good position to at least have a good guess as to the taxable income you’re liable for and how much tax you’ll end up owing for the whole calendar year. As soon as you know these values, take a moment to estimate your credits and deductions. In most cases, you should have a fairly good idea as to how much you can take off your total burden.
Don’t go too wild and add in deductions that you’re unsure apply to you. However, you don’t need to feel like you have to be too cautious. If you end up missing a deduction you were eligible for, then you can generally claim it later on when you file your income tax return next year.
Many taxpayers find that by making these quarterly payments they end up with a fairly healthy amount of money back each year. Those who don’t should at least see the amount they’re paying turn into something a bit more manageable.
Think for a moment how much a small business owner who works for themselves would have to pay if they waited all year to pay the IRS. With penalties, this sum is quite possibly astronomical. Quarterly payments wipe out most if not all of the fees, however, and they allow you to divide that total sum by four. Paying the IRS on four occasions is usually easier than having to write them a massive check later on.
Keep in mind that, as with anything in taxes, there are a few exceptions.
Estimating Payments in Certain Situations
IRS Publication 505 deals with tax withholding and estimated tax. It’s worth getting a copy of if you happen to be a sole proprietor or hold S corporation shares. Perhaps most importantly, though, it spells out how estimated tax requirements are different if you earn a majority of your income from farming or fishing. This doesn’t normally apply to hobby farmers, and you won’t be able to write off a weekend fishing trip you take with some friends from work.
However, if you’re a professional who doesn’t have a job outside of a commercial food-production business that you run yourself the IRS might be able to set up an alternative plan for you. There are often relaxed standards for people across the board who work in these specific circumstances.
Regardless of your background, one of the best things you can do to get help is to work with someone who can interpret tax codes with you.
Getting Help with Making Quarterly Estimated Tax Payments
A few people may find that they have no tax liability at all, but they might not be sure how to take advantage of this fact. Other taxpayers might be up against a wall and dealing with severe penalties. No matter what your specific situation looks like, you can get in touch with Success Tax Relief and talk to professionals who will help you develop the best-estimated tax plan to avoid any future issues.Contact us online today and we’ll put you in touch with experienced tax professionals who’ve seen it all!