How And When to Pay Your Estimated Federal Taxes
Did you know that the IRS can penalize you even if you do pay your taxes at the end of the year? You could file every form correctly and still get charged! That’s because people who don’t have their taxes withheld still get stuck with the same tax burdens that everyone else does.
At Success Tax Relief, we’re often asked when the right time to make these payments is. As you might have guessed, that’s a slightly tricky question.
Know if You Need to Make Estimated Payments
Relatively few people actually have to make estimated tax payments. Individuals and partners generally have to make them if they expect to owe more than around $1,000 or so when they set out to file their taxes before April 15. Sole proprietors of businesses who own their own company have to do the same if they meet this requirement. Shareholders in so-called S corporations that owe a burden of $1,000 or more will also have to make these payments.
Since corporations are technically persons from a certain point of view, they’re held to a somewhat similar standard. If you run a business that’s registered as a corporation without gaining that little S stamp from the IRS, then you’ll need to make estimated payments if you expect to owe tax of $500 or more.
This raises the question of who can reasonably expect to owe that much money. If you’ve owed it in the past, then the IRS will expect that you know you to pay estimated payments next time. There’s some leeway on this since it’s rather difficult to prove that a taxpayer was sure they were going to have to make them, but it’s much better to err on the safe side because there’s no penalty for making estimated payments when you didn’t need them.
In fact, those who end up paying slightly too much will get all that money refunded to them when they file at the beginning of next year.
Do none of these situations sound like they apply to you? Good; that means you won’t have to make these payments. Otherwise, there’s some forms to fill.
How to Pay Estimated Tax
As with nearly everything else involved with the IRS, there are several worksheets that allow you to estimate how much tax to pay. Form 1040-ES (Estimated Tax for Individuals) and 1120-W (Estimated Tax for Corporations) are the ones you’ll need. Keep in mind that if you hold stock in any S corporation, you’ll still want to file a 1040-ES form.
Once you get the proper form, use your income deductions and credits from the previous year as a guide. While you’ll need to make adjustments for changes in your financial situation and any recent legislation, it shouldn’t be too hard to figure out what your potential future tax burden would look like.
As soon as you have a monetary figure, you’ll probably end up with sticker shock. The reason this number looks so high is that it represents your entire tax burden for a whole year.
You’ll be dividing this number by four in the next step and will probably get a refund in some way, so don’t feel too discouraged if your bill looks rather high at the moment.
When to Pay Estimated Taxes
Both calendar and fiscal years are always divided into for separate quarters by the IRS. In general, you’ll want to pay four different times a year on a tri-monthly basis. There’s a specific section on Form 1040-ES that deals with this for individuals, and you’ll be eligible to use the Electronic Federal Tax Payment System (EFTPS) to pay them.
That being said, you don’t have to pay them quarterly if you don’t want to. If it’s easier to pay them in small weekly installments, then you’re free to do that. You could also send the IRS a payment every other week or once a month. The EFTPS will compile a history of every transaction, so you can be sure the money got to where it was going.
Does this all sound complicated? Unfortunately, it tends to be rather complex. There’s help available, however, that can take the sting out of these payments.
Professional Estimated Tax Payment Assitance
Numerous other taxpayers just like you have come to us asking for help with estimated tax payments. We’re always more than happy to provide them the tools they need to avoid getting stuck with a hefty bill! Contact us online today at Success Tax Relief and we might even be able to find you some deductions you might not otherwise have found.