Estimated Taxes- Things you need to know about.

estimated taxes

If you’re an employee of an organization, you won’t have to worry about calculating, withholding, and remitting taxes for your wages. Your employer will take care of all those activities and report them to respected government authorities. Estimated taxes come in when you are self-employed or your income isn’t taxed. In this case, you may have to pay estimated taxes quarterly.

What are estimated taxes?

Estimated taxes are simply the tax paid to the IRS for the income that is not subjected to tax withholdings. Some of the few examples of this income include earnings from freelance gigs, self-employed earnings, income earned from dividends, prizes, and other nonwage earnings.

The IRS has set quarterly deadlines to pay your estimated taxes so you can make tax payments as your income is earned.

IRS estimated tax deadlines for 2022

As mentioned above, the estimated taxes need to be paid every quarter, and the deadline for each quarter of the year 2022 is mentioned below.

  • First quarter (January 1st – March 31st, 2022- April 18th,
  • Second quarter (April 1st – May 31st, 2022)- June 15th,
  • Third quarter (June 1st – August 31st, 2022)- September 15th, 2022.
  • Fourth quarter (September 1st – December 31st, 2022)- January 17th,

In case any public holiday coincides with the IRS deadline, the deadline will be moved to the next business day.

How to Calculate estimated taxes.

You need to estimate your adjusted gross income (AGI), taxable income, deduction, and credits for the entire tax year to calculate your estimated taxes. You can also use the information from the previous year to calculate the estimated taxes for the current year. Once you estimate all the values for the entire year, you can calculate your estimated tax payments for the quarter. You can use the worksheet provided along with Form 1040-ES to estimate your taxes. If you’re using your previous year’s data, make sure you include all the expected deductions and income for the current year. After that, you can pay 100% or 110% of what you paid in the previous year as the estimated taxes for the current year

Paying your quarterly estimated tax

You should use form 1040-ES to calculate and pay your estimated taxes for a specific quarter. After all the calculations and review it to make sure that you haven’t made any errors. There are several methods to make the estimated tax payments. This includes your IRS online account, IRS2Go App, IRS direct pay, mail, pay in cash at IRS retail partners, etc.

What if you don’t pay estimated taxes,

You are subjected to pay penalties to the IRS if you failed to pay your quarterly taxes. You could also get penalized if you underpay your estimated taxes. If you underpay your estimated taxes, you need to attach an extra form (IRS Form 2210) when you file your annual returns. You can explain why you didn’t make equal payments.

How to avoid penalization

You can avoid the tax penalty by paying the same amount of what you owed last year or 90% of what you owe for the current year. it is recommended to pay 110% of the amount that you’ve paid in the previous year if your adjusted gross income of the previous year is more than $150,000. Or $75,000 if married and filing separately.

It is always recommended to consult a qualified tax preparer or a tax consultant before you file your taxes. This will help you estimate the right amount of taxes and avoid penalties. If you need someone to take a look at your taxes, feel free to reach out to us. We’re always here to help!

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