Those who are self-employed or living off of income from investments pay taxes four times per year. Traditional employees have taxes withheld from each paycheck. Estimated tax must be paid in order to avoid penalties and interest by waiting until tax filing day.
Quarterly Payments
Payments are due quarterly. The date does change to the next business day if a scheduled payment date falls on a holiday or weekend.
Due Dates:
- April 15th
- June 15th
- September 15th
- January 15th
The first payment for the tax year occurs on April 15th. The last payment is January of the following year. In 2016, residents of Massachusetts and Maine get until April 18th to make their first installment payment.
Knowing How Much to Pay
If your income has remained the same for several years, estimating how much your tax bill will be should be simple as you will just need to view previous returns. When your income fluctuates, you must estimate accordingly and include any potential refundable tax credits.
Determining Estimated Taxes
Estimated tax is the amount of tax you expect to pay from self-employment or investment income. You can project how much is owed by completing worksheets available via the IRS website. It is always ideal to estimate high in case you make more than planned.
Stay on top of your estimated taxes. If you do not know how to calculate these figures, enlist the help of an experienced tax preparer or accountant. Making the quarterly payments on time reduces the potential of having to pay penalties.
Image credit: Patrice Pourguères