For many US citizens individuals and businesses, paying taxes is not just an annual event. Certain taxpayers have the obligation to pay estimated taxes quarterly. These estimated tax payments help ensure that individuals and businesses are paying their fair share as income is earned, rather than delaying the full tax payment until filing their returns.
So, who needs to pay estimated taxes? Individuals, including sole proprietors, partners, and S corporation [the corporations that have a special tax status that allows them to avoid double taxation on corporate income] shareholders, generally must make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Corporations generally must make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
Failing to pay sufficient estimated taxes can lead to penalties and interest charges from the Internal Revenue Service (IRS). However, calculating and remitting these payments can be complex, particularly for those new to this obligation. Our experienced team can provide guidance on this topic.
What are Estimated Taxes?
Estimated taxes are quarterly tax payments made to the IRS on income that is not subject to withholding. This includes:
- Self-employment income (from freelance work, gig work, running a business, etc.)
- Investment income (from earnings on stocks, bonds, real estate, etc.)
- Alimony
- Taxable portion of Social Security benefit
The IRS wants taxpayers to pay taxes on this income as they receive it throughout the year, rather than waiting until filing their annual return. That way, the government gets access to the tax revenue sooner.
How to Pay Estimated Taxes
Calculating your estimated tax payments can seem daunting, but the IRS has methods to help estimate what you’ll likely owe for the year based on your current income and last year’s tax liability.
You will need to make estimated payments if you expect to owe at least $1,000 in taxes for the year after subtracting any withholding from wages. The payments are typically due four times per year.
You can pay electronically through the IRS Direct Pay system, pay by check or money order, or even use a credit/debit card (though that incurs processing fees). The key is to pay the required estimated amount for each period to avoid penalties.
When are estimated tax payments due?
There are four due dates for estimated tax payments in a year.
- April 15th for January 1 to March 31
- June 15th for April 1 to May 31
- September 15th for the period of June 1 to August 31.
- January 15th for the period of September 1 to December 31.
It’s crucial to stay on top of these payments to avoid penalties and ensure compliance.
Please note that the deadlines for the first two quarters in 2024 have already passed. The remaining quarterly due dates for 2024-2025 are as follows:
- September 16th for the period of June 1 to August 31.
- January 15th for the period of September 1 to December 31.
How to avoid underpayment penalties?
If you haven’t paid enough tax throughout the year, you may face a penalty.
Typically, you can avoid this penalty if your tax debt is under $1,000 or if you have covered at least 90% of the current year’s tax or 100% of the prior year’s tax shown on your return, whichever is lower.
Special rules apply to certain groups. If your income varies, you might adjust payments to avoid or reduce the penalty. The penalty may be waived off under specific circumstances, such as retirement or disability. Form 2210 provides details on waiver.
Our services for estimated tax payments
FinAdvantage offers a range of tax preparation and advisory services to assist clients with their estimated tax responsibilities:
- Individual Tax Preparation
For self-employed individuals, investors, and those with complex tax situations, our team calculates estimated tax payments based on projected income, deductions, and credits. We ensure clients stay compliant while minimizing potential penalties.
- Business Tax Preparation
Partnerships, S corporations, and other business entities often face estimated tax requirements. Our professionals have extensive experience handling these complexities, considering various factors including corporate structure, industry-specific nuances, and upcoming legislative changes.
- Specialized Tax Services
In addition to routine estimated tax calculations, we offer specialized services for unique circumstances including handling estate and trust taxes, expatriate taxation, or intricate investment structures that impact estimated payment obligations.
- Consultation and Advisory
Proactive tax planning is key to minimizing estimated payment burdens. Our consultants work closely with clients to evaluate their financial positions, model effective tax strategies; and provide tailored recommendations.
Importance of estimated tax compliance
Ignoring estimated tax obligations can have severe consequences, from underpayment penalties to issues obtaining financing or undergoing audits. By partnering with our firm, clients gain the peace of mind that comes with meticulous tax compliance.
Are you juggling complex income streams? We have got you covered with our team providing customized solutions, tailored consultations, and strategic tax planning.
At FinAdvantage, we will simplify the process of estimated taxes and ensure compliance, while you focus on your core business.
