What do you need to know about estimated tax payments?
Colorado Business CPA
June 30, 2014
If you are employed by a company with W-2 earnings and still owe money to the IRS or State agencies at the end of the year, you might want to adjust the amounts of withholdings. You can do this by decreasing the number of exemptions on your Form W-4. If you have children and a working spouse, make sure both of you are not claiming the same children on your Form W-4.
If you are a self-employed individual and owe more than $1,000 at the end of the year, you should pay estimated payments, perhaps every quarter. The payments are due on April 15th, June 15th, September 15th and January 15th.
Estimate the amount of income you expect to receive for the year to determine the amount of taxes you may owe. Make sure that you take into account any tax deductions and credits that you will be eligible to claim. Life changes during the year, such as a change in marital status or the birth of a child, can affect your taxes.
If your accountant prepared your taxes last year, he or she might provide you with the tentative amounts and Estimated Payment Vouchers for the next year. Your safe bet would be to pay at least the amounts provided on the forms, which would be considered 100% of prior year tax liability.
According to the Safe Harbor Rule, if your 2013 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2014 or 110% of the tax shown on your 2013 return to avoid an estimated tax penalty. You may pay online or by phone.
You may also pay by check or money order, or by credit or debit card. If you mail your payments to the IRS, make sure to enclose payment vouchers, Form 1040-ES.
Please let us know if you have any questions.