If you’re not having enough tax withheld throughout the year, you might be responsible for making estimated tax payments. Whether you’re self-employed or earn income from other sources, it’s important to understand when and how to pay to avoid unexpected tax bills and penalties.
You may need to make estimated payments if any of the following apply:
You earn self-employment income
You receive interest, dividends, alimony, rent, investment income, prizes, or awards
You don’t have enough tax withheld from a paycheck, pension, or other income
You owed taxes last year
If you expect to owe $1,000 or more in taxes for the year, it’s time to start planning. Use IRS Form 1040-ES to estimate how much you should pay.
The tax year is split into four quarterly payment periods, and each has its own deadline. Missing one could result in penalties, even if you’re due a refund when you file your return later. To stay on track, you can pay:
Online at IRS.gov/payments
By phone
Through the mail using the payment vouchers from Form 1040-ES
Generally, you can avoid penalties if you:
Owe less than $1,000 in tax after subtracting withholdings and credits
Pay at least 90% of your current year’s tax, or
Pay 100% of last year’s tax liability (or 110% if your income is higher)
Planning ahead and making estimated tax payments on time can help you avoid unnecessary stress and costly penalties. If you’re unsure how much to pay or when, consider speaking with a tax professional.
The experts at Alloy Silverstein are here to help you stay on top of your tax obligations and minimize surprises. Contact us today to get started.
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