Estimated tax
payments are used to pay
both income tax and
self-employment tax, along with other taxes and amounts
reported on your tax return.
If you do not
pay enough through
withholding or estimated tax
payments, you may be charged
a penalty, something that
will really irritate you if
your like me.
If
you do not pay enough by the
due date of each payment
period you may be charged a
penalty even if you are due
a refund when you file your
tax return.
Funny
right? take my money now and
give it back later so the
government can put it to use
during that duration. The
government uses the money
wisely, don't they? Yah
right?
Here is how
to determine the amount to
pay for estimated tax
payments to the IRS in order
to avoid paying penalties.
This is especially important
for people who have income
from self-employment.
Individual
calendar-years required
quarterly payments that are
due by April 15, June 15,
September 15 and January 15
of the following year.
To avoid
an underpayment penalty,
total tax payments must
equal or exceed any of the
following guidelines.
-
Pay
90% of the tax liability
for the current years
return
-
Pay
100% of the tax
liability from the prior
year return if the
taxpayers Adjusted Gross
Income (AGI) was less
than $150,000
-
Pay
110% of the tax
liability from the prior
year return if the
taxpayers Adjusted Gross
Income (AGI) was more
than $150,000
-
No
penalty is imposed if
the estimated tax for
the current year is less
than $1,000 or the
individual had no tax
liability for the prior
year. Also, the penalty
is enforced only if you
do not pay, not for
failing to file.
If you pay in as much as your tax
liability for the previous year, you can
pay your balance due without penalty
when you file your return, regardless of
the amount.
The
estimated tax is the
method used to pay tax on
income that is not subject
to withholding. This
includes income from
self-employment, interest,
dividends, alimony, rent,
gains from the sale of
assets, prizes and awards.
You also may have to pay
estimated tax if the amount
of income tax being withheld
from your salary, pension,
or other income is not
enough.
