There are two ways to pay your income tax as you go… payroll withholding or estimated taxes. People who do not earn pay from an employer, or those who don’t receive a paycheck, don’t have the opportunity to have income tax withheld. Therefore, they need to file estimated taxes. Now, let’s take a look at the rules for filing income tax this way.
What are Estimated Taxes?
There are two reasons you might have to pay your taxes this way. First, if you do not have enough taxes withheld from your pay. Second, you may have income that does not have taxes withheld from it. Most folks that are in business for themselves have to pay estimated taxes. These are taxes paid in advance of filing your return. They cover your possible tax liability. It’s essential to know the filing requirements for your taxes to avoid being charged penalties by the Internal Revenue Service.
Who Pays Them?
As we mentioned above, individuals who are sole proprietors, partners, and shareholders in S Corps are usually required to pay estimated taxes. This is true if they expect to owe $1000 or more with their return. In this case, they are due quarterly according to the schedule set by the IRS. Corporations also pay taxes quarterly if their tax liability will be over $500 when filing their return.
How To Avoid Paying Estimated Taxes
Suppose you get a regular paycheck and receive a W2 at the end of the year. In that case, you can request that your employer takes additional money out of your check each pay period to cover other taxes you may owe. Fill out a new W4 indicating how much extra money you want to be withheld, and return it to your employer.
You don’t have to pay the required taxes for the current year if you had no taxes due in the previous year. Of course, this is providing you were an American citizen or lawful resident at the time. You also must make sure that your last tax year stretched over twelve months.
How to Pay Your Taxes on Time
The IRS makes it easy for you to pay the estimated taxes you owe. You can send them in by mail, accompanied by IRS form 1040-ES. You can also pay online from your computer or through the IRS app, IRS2Go, on your phone or mobile device.
One of the best ways to pay your taxes is through the Electronic Federal Tax Payment System, also known as the EFTPS. In this case, the portal allows you to make all your tax payments using the same protocols. In addition, it enables you to retain records in one place of all the tax payments you’ve made.
Need Help Computing Your Taxes?
It may be difficult to calculate the amount of taxes you owe and to be sure that you pay them on time. So, if you need help with your estimated taxes, call JStevens Accounting and set up your consultation appointment today. We help small businesses and individuals every day, and we can help you too!