If you have income that is not subject to withholding you may need to pay estimated taxes to the IRS during the year. Whether you need to pay estimated taxes is dependent upon your financial circumstances, what you do for a living (if you’re self-employed for example), and the types of income you receive. Here are six tips that explain estimated taxes and how to pay them.
1. If you have income from sources such as self-employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, then you may have to pay estimated tax.
2. As a general rule, you must pay estimated taxes in 2013 if both of these statements apply:
1) You expect to owe at least $1,000 in tax after subtracting your tax withholding (if you have any) and tax credits, and
2) You expect your withholding and credits to be less than the smaller of 90 percent of your 2013 taxes or 100 percent of the tax on your 2012 return. Special rules apply for farmers, fishermen, certain household employers and certain higher income taxpayers.
3. Sole Proprietors, Partners, and S Corporation shareholders generally have to make estimated tax payments if they expect to owe $1,000 or more in taxes when they file a return.
4. To figure estimated tax, include expected gross income, taxable income, taxes, deductions and credits for the year. You’ll want to be as accurate as possible to avoid penalties and don’t forget to consider changes in your situation and recent tax law changes.
5. For estimated tax purposes the year is divided into four payment periods or due dates. These dates are generally April 15, June 15, Sept. 15 and Jan. 15 of the next or following year.
6. The easiest way to pay estimated taxes is electronically through the Electronic Federal Tax Payment System, or EFTPS, but you can also figure your tax using Form 1040-ES, Estimated Tax for Individuals and pay any estimated taxes by check or money order using the Estimated Tax Payment Voucher, or by credit or debit card.
Give us a call today if you need help making estimated payments.