WHAT IS ESTIMATED TAX & WHY SHOULD YOU PAY IT?

1040es2014kind ofIf you receive taxable income that is paid to you without income tax withheld, you may owe estimated tax. You should make your estimated tax payment(s) on time in order to not be charged penalties and interest for paying late, (for instance if you wait until you file your tax return to pay all the taxes you owe).

per Internal Revenue Service,

“Estimated tax is the method used to pay tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents,alimony, etc.). In addition, if you do not elect voluntary withholding, you should make estimated tax payments on other taxable income, such as unemployment compensation and the taxable part of your social security benefits.”

The rule of thumb is Income Tax is due when Taxable Income is received. There are four quarterly estimated tax payments every year but you only need to pay them if you owe for that quarter. If in any quarter you did not receive income that needs to have taxes paid in, you do not need to pay taxes that quarter. 

If you have withholding from another source of income, you may elect to withhold  more from that source — as long as your tax is paid on time, it doesn’t matter whether you make estimated payments with From 1040ES or whether you withhold extra tax from your paycheck, for instance, to cover any income you receive which is not taxed or withheld on your behalf.

If you need help figuring out what to pay with form1040Es, consider using Quickbooks. Get a free 30 day trial by clicking the banner below.

More:

~Want to know a Simple Way to Avoid the IRS Penalty for under-paying/not paying 1040ES 4th Qtr Estimated Tax?

  1 comment for “WHAT IS ESTIMATED TAX & WHY SHOULD YOU PAY IT?

Comments are closed.