Equifax

Finance Blog

Tax Tips: Who Should Be Making Estimated Payments?

Written by Eva Rosenberg on May 30, 2012 in Tax  |   No comments

Tax tips for small business owners. Excerpt from Small Business Taxes Made Easy by TaxMama Eva Rosenberg. Get more advice for filing taxes from TaxMama’s posts on the Equifax Finance Blog. There are four categories of people who should be paying estimated payments: People who…

tax tips estimated tax paymentsTax tips for small business owners. Excerpt from Small Business Taxes Made Easy by TaxMama Eva Rosenberg. Get more advice for filing taxes from TaxMama’s posts on the Equifax Finance Blog.

There are four categories of people who should be paying estimated payments:

  1. People who are self-employed
  2. People whose nonwage income is increasing (or expected to increase) in the current year
  3. People who have done well on the stock market
  4. People who have gotten a healthy inheritance (or other windfall), with assets that produce income

Anyone else? For business owners receiving wages, if you expect to owe extra taxes, simply have your tax professional manipulate your payroll tax withholding before year-end. That way, you never have to make estimated payments.

When Should You Be Making Those Payments?

Quarterly means every three months, right? Not when it comes to estimated payments. We’re dealing with the tax code here. Some extremely clever lawmakers decided that quarterly, for tax purposes, breaks down differently.

Sometimes you’ve got to pay within two months; other times, the quarter is four months long.

How Much Must You Pay?

Before we get into any payment specifics, let’s start with some fundamental tips about making estimated tax payments. Keep handy the link to the online version of IRS Publication 505, which is about withholding and estimated tax payments. Changes in the rules will appear there.

You will be using Form 1040-ES (and your state’s equivalent). For the current year, look up the instructions to Form 1040-ES – http://www.irs.ustreas.gov/pub/irs-pdf/f1040es.pdf.

Typically, you must only pay estimates if
1. You expect to owe $1,000 or more beyond any payroll withholding
and
2. Your withholding or other tax credits (education, children, and so on) will be less than 90 percent of the tax you expect to owe on your current year tax return. (If your income falls into the “wealthy” or “high-income” levels for the year, you must pay 100 percent of what you expect to owe.)
or
3. Your withholding or other tax credits (education, children, etc.) will be less than 100 percent of the tax return shown on your prior year’s tax return. If you expect to have losses from the business, don’t worry about making estimated tax payments on the business.

Wise heads feel that it is best to pay the minimum required taxes in advance. You can put your money to better uses than the IRS can.

READ MORE:
Filing Taxes: Take the Office-In-Home Tax Deduction
Organize Your Paperwork Before Filing Taxes
Filing Taxes: Smart Things to Do with Your Tax Refund
Make a Game Out of Filing Taxes

Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.

No comments yet


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Tax Archive

Stay Informed Sign up for our FREE Equifax email Newsletter