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Posted by TANYA HERNANDEZ

Taking Care of Your Estimated Taxes

Taking Care of Your Estimated Taxes

Paying estimated taxes is something that no individual or business wants to deal with. This is an added expense that you have to add into your bills four times a year and it is much nicer to use this money for everything. For most taxpayers, it is not necessary to pay estimated taxes because these are taken out of their paychecks. For self-employed individuals and those who make large amounts of money on rent and stock dividends, estimated taxes is something you really need to watch out for. TH Tax Services will help you to understand estimated taxes and figure out whether you need to pay these through the year.


When to pay your estimated taxes

There are only certain groups of people who must pay their estimated taxes through the year. Most employees who are paid salary or hourly will not have to worry about paying estimated taxes because this money is taken out of their paychecks each pay period. When these deductions are figured into their tax return, they usually come below the $1000 so there are no issues with having to pay these estimated taxes.

If you are self-employed or make an income from prizes, alimony, rent, interest and dividends, you may have to pay estimated taxes. If you owe or expect to owe a minimum of $1000 in taxes after all the deductions and credits are applied to you, you will need to pay estimated taxes. But, if you owe less than that amount, say $500, you won’t have to pay the estimated taxes. Keep in mind this is after the deductions and credits. You may be self-employed and owe $2000, but once you include credits for filing jointly while married, children tax deduction, and home office use, you may end up less than the $1000 and not have to worry about the estimated taxes.

To figure out whether you are required to pay estimated taxes, talk to the professionals at TH Tax Services. We can take a look at your income and help you to determine how much you will owe this year for your tax bill and whether you will need to start making estimated tax payments.


Penalties when you underpay these taxes

So, what happens if you don’t pay your estimated taxes on the due dates each quarter? To avoid the penalty, you should split up your tax bill for the previous year into four parts, one for each quarter, and then pay at least that throughout the year. Even if you make more the next year or your tax bill is higher for some reason, you will not incur penalties for these underpayments. On the other hand, if you pay less than the minimum payment, you could face penalties on top of your tax bill.

The IRS comes up with different penalties each year and there are a number of factors in play. In addition, these are going to be figured for every payment period so the penalties can vary as well. In some cases, the IRS will figure out how much you have underpaid and will send you a bill for this extra amount along with any penalties that you will owe. If you don’t receive this letter, but you had to pay less than your minimum or you missed out on a payment, you should fill out the IRS Form 2210 to figure out your penalties and send in the new payment as soon as possible.


When am I charged the penalties

The penalties are going to be charged after each of the missed pay periods. You will not get until the end of the year to assess these penalties. If you send in a payment on April 16th instead of the 15th, you will be given a penalty for a late payment so make sure you send these in on time.

There are a few things to keep in mind with this though. If you lived in the country and were a citizen or a resident all year long, and you didn’t have a tax liability in the previous year, you will not have a penalty for not paying your estimated taxes. But once you get the tax bill above $1000, you should start to pay your estimated taxes each year until your career situation changes to avoid penalties in the future. Or, if your taxes end up less than $1000 for the year, you will not have penalties for underpaying the estimated taxes. If you need help understanding whether you will be charged the penalties for estimated taxes, make sure to contact our professionals at TH Tax Services.


When the penalties are waived

There are some instances when the penalties will be waived for underpaying your estimated taxes. These include:

•You neglected the payments because you didn’t know about them—this usually comes into play the first year you owe over $1000, but you must make the tax payments afterwards.

•There was a reasonable cause that you didn’t make the payments.

•You retired over the age of 62 or became disabled.


If any of these apply to you, you may be able to get the penalty for underpaying your estimated taxes waived. Our professionals at TH Tax Services can help you determine if this is something you may qualify for and can help you to fil out the proper paperwork.


Paying your estimated taxes on time, and for the right amount, is critical for avoiding penalties and fees. If you are unsure about how much you might owe or how to pay your estimated taxes, make sure to contact Tanya Hernandez from TH Tax Services in Panorama City, CA. We can help you figure out the best amount to pay quarterly for your estimated taxes to avoid penalties during tax season.




TANYA HERNANDEZ
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