You must pay your estimated quarterly taxes four times a year. Nevertheless, if you plan the payments correctly, it can lessen your tax burden. Instead of facing an unexpected bill, you’ll have already paid the approximate amount due. And if you want help estimating what you owe in taxes this year but don’t feel like crunching numbers, you can always use an estimated tax payments calculator for personalized guidance.

What do you mean by estimated taxes?

Self-employed people must pay taxes in four installments throughout the year rather than when they have an income. Estimated taxes are that which you count how much revenue it will generate this year. The payment is calculated on that amount (income tax, self-employment tax, and any other applicable taxes). Anyone with income not subject to automatic withholding must submit estimated tax payments to the IRS. Tax forms for the whole year are then completed, and any overpayment or balance due is paid or reimbursed.

Should I pay estimated taxes?  

For an individual who anticipates owing over $1,000 in taxes for the year, estimated quarterly payments are required. For corporations who expect their total tax bill for the year to be at least $500, they too will be required by law/IRS guidelines. If these IRS requirements are met, then it’s likely that your business would also have to pay estimated quarterly taxes unless otherwise advised by an accountant or lawyer.

You don’t need to pay estimated taxes

When all your earnings are coming from a W-2, you need not pay your estimated taxes. Your employer has withheld taxes for you throughout the year, and your employer should report them on it. Those with untaxed income outside of their job can avoid paying taxes by withholding more from their paycheck by taking more allowances through Form W-4. This may not always be safe. Sometimes it is best that taxpayers pay themselves directly, quarterly based on estimates, and instead of risking being audited later for underpayment. Some government payments qualify for voluntary withholding as well through Form W-4V. There are a lot of Americans who need to pay estimated quarterly taxes, and there are others who don’t. 

  1. For example, if you did not owe any taxes in the previous tax year or had to file a return for that period, you do not have to pay them. 
  2. If your tax year is twelve months long and you were an American citizen or resident, it’s all-good news again. There’s no need to pay these payments; however, this doesn’t apply if the laws demand them.

How to calculate the estimated taxes?

The estimated tax worksheet is in the instructions of Form 1040-ES. Corporations can find instructions on Form 1120-W. 

  • Start with your ADJUSTED GROSS INCOME. If you speculate that this year’s income is similar to last year’s income, use the AGI from last year’s tax return as a starting point. From there, subtract either the standard deduction or itemized deductions and what number remains after these deductions is taxable income. Once you know this figure, plug it into federal brackets corresponding to taxable incomes for how much you owe federal income taxes.
  • When you are hired by your employer, they are withholding money from your paycheck and paying Social Security, Medicare, and income taxes. Self-employed workers, including contractors or freelancers, don’t have this withholding, so they pay self-employment tax to ensure funds go into these programs. To calculate SE tax, you have to take your total earnings, and then you have to multiply it by 92.35%. The US government only applies the tax to 92.35% of your income. Then you have to use the actual tax, which is 15.3%. Add SE tax to your income tax together and then divide them by four (the number of paychecks) so that each paycheck will have an estimated amount for what’s owed in quarterly installments on their return due date. This you can do with the help of an estimated tax payments calculator.
  • You have got alternative income sources. For example, you may incur capital gains tax if you sell a house or stock for a significant profit. There could also be an influx of cash from 401(k)s and life insurance death benefits- such as lump-sum payments which are not subject to taxes themselves but need to be considered when estimating one’s finances. All income is subject to taxes, though. Some examples of nontaxable revenues include welfare, workers’ comp., child support (not alimony), specific veteran’s benefits, or gifts exempt from taxation; these must still be accounted for to avoid penalties on Tax Day.

Payment Dates

If you have to pay for your estimated taxes, they are due on April 15th, 15th day of June, 15th day of September, and 15th day of January. During weekends and legal holidays, it is due the next business day.

  • The payment period ranges from January 1st, 2022, to March 31st, 2022, and the due date is April 15th, 2022
  • The payment period runs from April 1st, 2022, to May 31st, 2022, and the due date is June 15th, 2022
  • The payment period runs from June 1st, 2022, to August 31st, 2022, and the due date is September 15th, 2022
  • The payment period runs from September 1st, 2022, to December 31st, 2022, and the due date is January 15th, 2023

Any penalty

The IRS has a penalty system for people who don’t pay the required amount. The penalty will vary depending on when payment is made and how much was unpaid. For avoiding penalties, make sure that you’re paying at least 90% of your tax liability or 100% of last year’s taxes (the safe harbor rule). These are just some tips for avoiding a penalty, but there are other ways.

Summary –

Flyfin helps you estimate your taxes and plan for them by providing an estimated tax payments calculator You can organize business financials and create a budget per each type of payment while filing quarterly tax deadlines that come up fast.

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