When you file your annual income tax return, if you have not paid enough income tax, you may have to pay a penalty for underpayment. The basic rule is that you must pay your taxes as you go. For example, if you are a wage earner your taxes are withheld from each paycheck. When you are self-employed; however, no one is withholding taxes for you and you may be responsible for paying estimated taxes. Taxpayers who have large amounts of interest, dividends, capital gains, or income from trust, corporation, and partnership interests may also be required to pay estimated taxes.
How do you know how much you will owe in taxes? Use last year as a guide or, if your income has changed, contact us to have your tax liability estimated. If the tax you owe will be more than $1,000 at the end of the year, estimated tax payments are required. Taxpayers need to prepay at least 100% of their tax liability from the previous year (110% if your adjusted gross income exceeds $150,000) or 90% of their tax liability this year to avoid paying the penalty.
Another factor you may wish to consider is whether you are able to absorb a large tax burden at the end of the year. If not, it may be advantageous to pay estimated taxes throughout the year to lessen the burden even if the IRS does not require you to do so. The last thing you want to do is have to go on an installment plan to pay your prior year tax at the year end and still be faced with paying estimated taxes for the current tax year too so that you don't end up in the same situation.
Remember to file state estimated taxes when required too.
The deadline for the third quarter of estimated taxes is September 15, 2016.
If you need assistance estimating your tax liability, contact L&F Tax & Bookkeeping Services .
How do you know how much you will owe in taxes? Use last year as a guide or, if your income has changed, contact us to have your tax liability estimated. If the tax you owe will be more than $1,000 at the end of the year, estimated tax payments are required. Taxpayers need to prepay at least 100% of their tax liability from the previous year (110% if your adjusted gross income exceeds $150,000) or 90% of their tax liability this year to avoid paying the penalty.
Another factor you may wish to consider is whether you are able to absorb a large tax burden at the end of the year. If not, it may be advantageous to pay estimated taxes throughout the year to lessen the burden even if the IRS does not require you to do so. The last thing you want to do is have to go on an installment plan to pay your prior year tax at the year end and still be faced with paying estimated taxes for the current tax year too so that you don't end up in the same situation.
Remember to file state estimated taxes when required too.
The deadline for the third quarter of estimated taxes is September 15, 2016.
If you need assistance estimating your tax liability, contact L&F Tax & Bookkeeping Services .