When you do not have enough taxes withheld from your annual income, the IRS will expect you to make estimated tax payments. This is the case for those earning self-employment income, interest, dividends or capital gains. When applicable, estimated taxes should be done timely to avoid penalties and related interest assessments. Penalties for failure to pay estimated taxes are often the most difficult to remove.
For 2013, should you expect to owe over $1,000.00 in tax, you will want to make estimated tax payments.
To calculate the amount of your estimated taxes, project the amount of income you expect to receive in the current year. Remember, it may be prudent to include any tax deductions and credits, as well as the impact of life changing events such as birth and marriage. If you are unsure, and your Adjusted Gross Income (AGI) was over $150,000.00 in the prior year, have your estimated tax payment equal 110% of what you owed for the prior year. This figure should then be paid quarterly if possible. To avoid shortfalls, it is best to try to make your estimates as accurate as possible.
Estimated tax payments are usually made four times a year. The dates that apply to most are April 15, June 17 and Sept. 16 in 2013 and Jan. 15, 2014. Use the Form 1040-ES, Estimated Tax for Individuals, to report your estimated tax.
Taxes may be paid online, by phone, check, money order, credit or debit card. More information about your payment options are available in the Form 1040-ES instructions. If you mail your payments to the IRS, payment vouchers that come with Form 1040-ES should be used. It is recommended when paying by check that you are very clear with your identifying information as well as your tax year to which payment applies.
For more information about estimated taxes, see Publication 505, Tax Withholding and Estimated Tax.