Estimated Taxes: What to Know

First some things to remember:

  1. Extensions to file your tax returns are NOT extensions to pay. You must still pay your tax due in April (or another month depending) even if you file the return in October.
  2. The IRS prefers you to pay your tax throughout the year either as withholdings (for example withholdings on a W2) or as estimated tax payments.
  3. Common reasons you might owe estimated taxes are if you have a “side gig” or 🎶 freelance income, đź’˛ Investment income (if your advisor isn’t withholding for you), đź’» crypto currency transactions, 🏠 rental income, đź—˝state tax refunds, and there are many more.

Now, here’s how you can do it:

  1. Determine If You Need to Pay:
    If you expect to owe $1,000 or more in taxes when you file your return, you probably need to make estimated tax payments.
  2. Calculate Your Payments:
    Estimate your income for the year and use the IRS Form 1040-ES to calculate your estimated tax.
    If we filed your return last year, your estimated taxes to make throughout the year will be within your return copy.
  3. Make the Payments:
    Online: The easiest way is through the IRS Direct Pay website or the Electronic Federal Tax Payment System (EFTPS). You can set up payments online, which is convenient.
  4. When to Pay:
    Payments are generally due quarterly: April 15, June 15, September 15, and January 15 of the following year. If the due date falls on a weekend or holiday, the deadline is the next business day.
  5. Track Your Payments:
    Keep records of the payments you make. The best way to do this is to send a pdf confirmation of the payment made to us through sharefile. We’ll need this information when we file your annual tax return.
  6. Adjust as Needed:
    If your income changes during the year, you can adjust the amount of your estimated payments for the remaining quarters.
    Making these payments helps you avoid underpayment penalties and ensures you’re meeting your tax obligations throughout the year.

Lastly, please call us if you are concerned and absolutely tell us if you have a large sum of income that could be taxable or if your income vastly changed from the previous year. It is our goal to help you avoid penalties and flourish. Your success is ours.