What are estimated tax payments?
And do I really need to make the estimated payments?
The United States employs a “pay-as-you-go” tax system. This means that by the time we get to the end of the year, the goal is to be all paid in. Tax withholding and estimated payments will get us there. In fact, when taxes are reconciled and filed there is generally a penalty for owing more than $1000.
Notice I said “generally.” There are situations where this isn’t the case.
Ideally this should not be an issue for those taxpayers whose income is simply in the form of a paycheck and receive a W2 at the end of the year.
There are many sources of income taxpayers receive that has not been previously taxed and can reconcile to a tax liability. Sales of stock and other investments. Retirement distributions. Some Social Security payments. Rental property income. And the big culprit, self-employment.
When you are self-employed you can almost guarantee the need to make estimated tax payments or be subject to penalties. Not only are you subject to regular income tax to the IRS and to the state, but you are also subject to self-employment tax (15.3%).
Estimated taxes are due quarterly but are not true quarters. The due dates are April 15 (yes, the same day as the taxes for the previous year), June 15, September 15, and January 15 of the following year.
So, to answer the question of whether estimated payments are necessary, that depends. It depends on how much taxable income you received during the year for which there has been no withholding.
How do I pay estimates?
If you need help calculating estimates, please call our office. First City Income Tax 912-335-5404.
What if I can’t pay them?
Are you concerned that you cannot make the payments by the due date? There are options we would be happy to discuss. If you owe back taxes and are not sure how to conquer the debt, we may be able to help you put together a plan.
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