The Who, What, When, and Where of Estimated Taxes.
What are Estimated Taxes?
Estimated taxes are the amount of income tax that self-employed individuals, freelancers, and others who are not subject to traditional tax withholding must pay throughout the year. Estimated taxes are paid quarterly, and they are calculated based on the taxpayer's expected income, deductions, and credits for the year.
The purpose of estimated taxes is to ensure that taxpayers who do not have taxes withheld from their income throughout the year still pay their fair share of taxes to the government. If taxpayers wait until the end of the year to pay all of their taxes, they may be subject to penalties for underpayment.
To determine their estimated tax payments, taxpayers must estimate their total income, deductions, and credits for the year and calculate the amount of tax that will be owed. They must then make four equal payments throughout the year, typically due on April 15th, June 15th, September 15th, and January 15th of the following year.
Estimated tax payments can be made online or by mail using IRS Form 1040-ES. It's important to note that estimated tax payments are not an additional tax, but rather a way to prepay taxes owed to the government.
How To Calculate Estimated Taxes.
Here are the general steps to calculate estimated taxes:
Estimate your total income for the year: This includes all sources of income, such as wages, self-employment income, rental income, investment income, etc.
Estimate your deductions and credits: This includes any deductions and credits you plan to claim, such as business expenses, charitable contributions, mortgage interest, etc.
Calculate your taxable income: Subtract your deductions and credits from your total income to determine your taxable income.
Estimate your tax liability: Use the tax tables or tax software to estimate your federal and state tax liability based on your taxable income.
Determine your required estimated tax payments: Divide your estimated tax liability by the number of estimated tax payment periods for the year (usually four) to determine how much you should pay each quarter.
Adjust for any withholding: If you have any tax withheld from your paycheck or other income, subtract that amount from your required estimated tax payments.
Submit your estimated tax payments: Make your estimated tax payments by the due dates using the appropriate forms and payment methods.
It's important to keep in mind that calculating estimated taxes can be complex, especially if you have multiple sources of income or deductions. It may be helpful to consult with a tax professional like myself to ensure that you are accurately estimating your tax liability and making the correct estimated tax payments.
How To Pay Estimated Taxes.
The method of paying taxes may vary depending on your location and tax situation, but generally, here are the steps to pay your taxes:
Determine the amount of taxes you owe: This can be done by reviewing your tax return or consulting with a tax professional like myself.
Choose a payment method: There are several ways to pay your taxes, including online payment, mailing a check or money order, paying in person, or setting up an electronic funds withdrawal. You can find more information about payment methods on the website of the tax authority in your country or state.
Make the payment: Once you have chosen a payment method, follow the instructions to make the payment. Be sure to include any necessary payment coupons or forms, and double-check that you have entered the correct payment amount and tax year.
Keep a record of your payment: It's important to keep a record of your tax payment, including the payment amount, date, and payment method. This can be useful if you need to prove that you have paid your taxes, or if there are any issues with your payment.
It's important to pay your taxes on time to avoid penalties and interest charges. If you are unsure about how to pay your taxes, or if you need help with tax planning or preparation, it may be helpful to consult with a tax professional like myself!
