First of all you may ask: What ARE estimated taxes? Well, the 'Estimated Tax' is a method used to pay tax on income that is not subject to tax withholding. You may need to pay estimated taxes during the course of the year depending on what you do for a living and what type of income you receive.
Here are six tips from the IRS that will provide you with a quick overview of estimated taxes and how to pay them. - If you have income from varying 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.
- As a general rule, you must pay estimated taxes in 2011 if both of these statements apply: a) You expect to owe at least $1,000 in taxes after subtracting your tax withholding and credits; b) You expect your withholding and credits to be less than the smaller of 90% of your 2011 taxes or 100% of the tax on your 2010 return. Please keep in mind that there are special rules for farmers, fishermen, certain household employers and certain higher income bracket taxpayers.
- For Sole Proprietors, Partnerships and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.
- To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions and credits for the year. It is advisable to use the worksheet on Form 1040ES, (Estimated Tax for Individuals). You will need to be as accurate as possible to avoid penalties.
- The year is divided into four payment periods, for estimated tax purposes. Those dates generally are April 15, June 15, Sept. 15 and Jan. 15.
- The easiest way to pay estimated taxes, however, is electronically through the Electronic Federal Tax Payment System or EFTPS. You can also pay estimated taxes by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.
Hopefully this helps to clear up a few questions regarding estimated taxes! For help with your business accounting or tax related needs contact the professionals at www.EnvisionTaxandAccounting.com |
