CARL WATTS & ASSOCIATES
May 2nd, 2011
|
Washington DC
|
tel/fax 202 350-9002 |
|
The IRS says that federal taxes are "pay as you go", which is a system for businesses and individuals to pay their expected tax liability as they earn or receive their income from employment, busyness, or investment during the current income year.
 |
|||
|
Payments can be made under the form of estimated taxes and, generally, people who run their own business, landlords, investors, and other people may need to pay in estimated taxes if their paycheck withholding won't cover all the taxes that are due.
|
|||
|
|
|||
|
|||
|
Simply fill out a new Form W-4 and give it to your employer. (This is the form used to figure the right amount of federal income tax to have withheld from your paycheck.)
|
|||
|
|
|||
|
If you own your own business (sole proprietorship) or are a shareholder in a Partnership or S Corporation and expect to owe at least $1,000 in federal taxes, you are probably going to have to make some estimated tax payments.
|
|||
|
|
|||
|
There is an exception to that rule, however. If you didn’t have to pay any federal taxes last year because your business didn’t make a profit or you weren’t working, then you will not have to make any estimated tax payments this year no matter what you owe. Be aware though that this special rule only applies if you were a U.S. citizen or resident for the entire year and your tax return for last year covered the whole 12 months.
|
|||
|
|
|||
|
Even as an employee with regular tax withholdings from your paycheck, if you have other income such as interest, dividends, rents, or income from side jobs, consulting work, or other miscellaneous income, then you need to pay at least enough tax, through a combination of withholding and estimated payments, to avoid the estimated tax penalty.
|
|||
|
The penalty annual rate is set by the IRS every year. The penalty for underpayment of 2010 estimated tax is figured at the annual rate of 4% for the number of days the underpayment remained unpaid from April 16, 2010, through April 15, 2011.
|
|||
|
|
|||
Estimated Taxes
|
To avoid the penalty, you will need to pay in at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
|
|
Once you figure out how much estimated tax you need to pay, divide the amount by four and file your federal estimated taxes using Form 1040-ES.The form includes four numbered payment vouchers to send with your quarterly payments, as well as instructions on how and where to file.
|
|
|
|
The usual deadlines for estimated payments are: April 15 for quarter one, June 15 for quarter two, September 15 for quarter three, and January 15 for the fourth quarter of the year.
|
|
|
|
If you pay by check, make sure to make it payable to the United States Treasury, write your SS number and the year for which you are paying.
|
|
You can also pay by Credit Card, using one of the two authorized payment services: Official Payments and Pay1040. Or you can use the Electronic Federal Tax Payment System.
|
|
Make sure you keep copies of all payments and forms.
|
|
Unless you live in one of the states that don’t have income taxes, don’t forget to make state estimated taxes too (you can get forms and vouchers for state payments as well).
|
|
As always, we recommend that you rely on professional advice to make sure you don’t underpay or overpay your taxes, estimated and otherwise.
|
 |
|
Troubles viewing this message? View in browser online here
|