Estimated Tax
Estimated Tax
Estimated tax is a system used by the IRS for individuals and businesses to pay taxes on income that isn’t subject to withholding. This includes self-employment income, interest, dividends, and rental income
01
Pay Estimated Tax?
Individuals and businesses that expect to owe $1,000 or more in tax when filing their return, after subtracting withholding and refundable credits, typically need to make estimated tax payments.
02
Quarterly Payments
Estimated taxes are usually paid in four quarterly installments. The due dates are typically April 15, June 15, September 15, and January 15 of the following year.
03
Calculation of Estimated Taxes
To calculate estimated taxes, taxpayers can use the previous year’s tax liability or project their current year’s income. Form 1040-ES is often used for individuals to estimate their taxes.
04
Avoiding Penalties
Making timely estimated payments helps avoid penalties for underpayment. Generally, if you pay at least 90% of the current year's tax liability or 100% of the previous year's liability (110% for higher earners), you can avoid penalties.
05
Adjusting Payments
Taxpayers should adjust their estimated payments if there are significant changes in income, deductions, or credits during the year to ensure accurate payment and avoid penalties.
06
Professional Guidance
Consulting with a tax professional can help individuals and businesses effectively estimate their tax obligations, ensuring compliance and optimal tax management throughout the year.
