This is Beriso Tusse here from BTL & Company, P C Tax & Accounting. We help many tax payers in Oregon to make estimated yearly payments so if you need help with the creation of your estimates please get in touch. Knowing when to pay and how much to pay can be confusing for the average person. Finding the help of a tax professional or accountant will see that you are paying the government exactly what you need to, and nothing more. An expert tax preparer knows how to estimate your quarterly tax payments efficiently and effectively.
Who Should Pre Pay Estimated Taxes?
Tax payers who work for an employer are generally exempt from the need to pay estimated taxes quarterly. This is because your employer takes the necessary measures to withhold certain earnings from your paycheck during the year, which are applied to your overall taxable income. However, for persons who are self employed, or receive income from other sources, quarterly payments are required. Certain forms of income, such as dividends, alimony, and interest income, are not subject to withholding. Other examples include gains from stock or other asset sales earnings from a business. If you fall into one or more of these categories, paying estimated taxes throughout the year is not an option, but a requirement.
If you are a tax payer who anticipates owing the federal government more than $1,000 in taxes for a given year, then you will be forced to make quarterly payments. There are other rules regarding your adjusted gross income total and your resulting withholding amounts. This can be an incredibly complicated and frustrating situation to understand. If you are still unsure as to whether you should be making estimated tax payments, find a tax professional in your area who can direct you to the proper course of action. They will determine if you meet the criteria or not.
How To Make Your Payments
If it is discovered that you meet the criteria for quarterly payments, those payments cannot be missed. The Internal Revenue Service sets four specific dates for payment, January 15th, April 15th, June 15th, and September 15th. The payments that you make must be postmarked on or before those four dates. Even one day late, no matter what, and you will receive a penalty and interest on your total taxes due. If one of those dates occurs on a weekend or bank holiday in the United States, the date changes to the very next business day. The mailing date regulation applies to all payments that are sent in the form of a personal check, business check, or money order. Along with your on time payment, you must include a payment voucher from the IRS. The voucher is labeled as a 1040V, and can be found on the IRS website along with the 1040ES for estimated payments.
How to Estimate Your Payments
There is no sure fire way to exactly estimate what your taxes will be for the coming year. Compound that by the fact that the instructions and detailed standards given to tax payers on the 1040ES are highly confusing, and it all equals too much frustration. Finding and working with a Tax preparer is your best option. Even so, there are some things you can do to ensure that you pay a necessary amount, and are not penalized.
Many tax payers, and even your tax preparer, will refer to the previous year's owed taxes. If you were required to pay $2,400 in taxes last year, then it is a relatively safe bet that that will be the same this year, if nothing major has changed. For this example, the tax payer would then make quarterly payments of $600 on the given dates. This means they are pre paying 100% of their estimated taxes, which is considered a “safe harbor payment”. If by the national tax deadline, it is determined that you owe more money, the IRS will not penalize you for that shortage, because you made a sincere effort to pay a responsible estimated amount.
However, if you know for a fact that you are going to have drastically less income or greater withholding this year, you can estimate your payments at 90% of last year's total. In the example above, this would mean a total estimation of $2,160, which is four equal payments of $540. Doing this is only advisable if a tax professional agrees that your situation warrants the lesser payments. If you make this change, and it turns out that you owe more money to the IRS, you will be penalized and fined.
Put Your Refund to Good Use
One of the smartest things you can do to make your IRS quarterly payments is to use your refund money from the previous year. A tax refund is just that, a refund based upon an overpayment. Anyone who receives a tax refund has overpaid throughout the previous calendar year on their taxes. Applying that refund to your next year's quarterly payments will save you much time and headache.
Let me, Beriso Tusse from BTL & Company, P C Tax & Accounting lead you through the process of estimated tax payments. We will work with your income data, along with your previous year's tax returns to determine how much you should be paying, and when. As accountant and tax preparer, I understand the importance of paying in advance, to avoid a lump sum balance due at tax time.
