Estimated Tax Payments - Everything you need to know!
Many of you are (sadly) familiar with the portion of your paycheck that’s withheld for direct tax payments. However, this tax withholding doesn’t necessarily cover your complete tax liability for the year, especially when it comes to other forms of taxable income - including interest, dividends, alimony, self-employment income, capital gains, prizes and awards. This is particularly important for individuals that are self-employed, and here is where “estimated tax payments” come into play!
Estimated tax payments are taxes paid to the IRS to cover taxable income that is not otherwise withheld throughout the year.
Does this apply to you?
If you are self-employed, then yes! If you have taxable income, including interest, dividends, alimony, self-employment income, capital gains, prizes and awards, then yes! If you simply do not know, DBC tax & business advisors can help determine any tax liability as well as how much to file and when. Contact us here to get started! Especially for those that regularly owe each year, right now is the best time to reach out to us and do a tax projection! A tax projection is a service that DBC offers to review and analyze your taxable income and estimate your tax liability for 2024.
Let’s say you will need to make estimated tax payments - how, when, and what do you need to pay?
WHEN - Estimated tax payments are due across 4 payment periods based on the 2024 IRS’ schedule - Exact dates below (sourced from IRS):
1st payment due on April 15th, 2024 for income between January 1st to March 31st - PAST
2nd payment due on June 15th, 2024 for income between April 1st to May 31st
3rd payment due on September 15th, 2024 for income between June 1st to August 31st
4th payment due on January 15th, 2025 for the income between September 1st and December 31st
Note: If these due dates fall on a Saturday, Sunday or legal holiday, the payments are due the next business day (Source: IRS)
HOW -
To send these payments to the IRS, there are a few options! The easiest method is to pay online. Other options include sending estimated tax payments with Form 1040-ES by mail, by phone or from your mobile device using the IRS2Go app. To see all payment options, refer to IRS.gov/payments.
If you don’t fulfill your estimated tax payments, there may be IRS penalties. Depending on the outstanding amount, you may avoid the penalty. However, this isn’t something to lean on, and it’s always best practice to estimate and pay your taxes to the most accurate amount.
The bottom line is as your income accumulates throughout the year, taxes need to be paid. It may be via withholding or estimated tax payments. Either way, DBC can help simplify the process and optimize your earnings!
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