Every American is responsible for paying their fair share of taxes to the United States government both throughout the year via withholdings and once filing takes place typically between January and April. While most would argue their contributions are way more than a “fair” share, certain individuals are advised or potentially required to make quarterly contributions in excess of their current tax input called, “estimated tax.”
This estimated tax doesn’t apply to everyone but there are certain situations which will influence your tax status and potentially cause you to qualify for estimates. These taxes are paid in on income received that otherwise does not apply to the withholding elements of money received. Most common is self-employed income but other factors which can formulate an individual to become responsible for estimates include: business earnings, dividends, interest income or rent payments and a few other sources.
If within a single year you owe either $1,000 or more to the Federal Government then the Internal Revenue Service (IRS) expects you will pay estimated taxes on qualified income. These individuals are often subject to that requirement for estimated tax application
• Self-Employed or Sole Proprietor
. Both entities need to consider making estimated tax allotments, especially if their perceived income is expected to surpass $1,000 in tax liability over a given year. Even part-time individuals should be considering estimates as they are subject to the same expectations and requirements of their full-time counterparts.
• Partners and Corporations
. Similar to individuals who function under one of the previously disclosed methods, both partnerships and corporations are influenced to make estimates based on their tax liabilities. For all types of corporations, payments are expected at half the rate of an individual, meaning $500 in liability should signal a need for the quarterly payment to get ahead.
• Prior Year Owed
. Individuals or other entities which owed tax at the end of a previous cycle should investigate the reason for their withholding. Typically, not enough money was taken from a paycheck or profit and thus more should be kept in the coming year to offset the potential costs.
By investigating the cause for such an underpayment and making up the difference via an estimated tax payment in the current year, a potential refund or less payment can be expected at tax time.
Understanding if you may be required to pay estimates can be helpful in planning your income throughout the year. Setting aside money necessary for payment to the IRS will not only help to avoid the sticker shock of receiving a huge tax bill after filing but can also remedy other potential shortfalls as the tax implications of an individual change from year to year.
The accounting experts at Bloch, Rothman, and Associates
will be pleased to assist you in filing a return or planning for future needs, including providing estimated payments. Our associates can help ensure that you not only receive the best refund possible but also are aware of the implications your type of earnings may have on a return. Further, they are willing and ready to assist in filing via the method most specific to your individual tax situation. Known for providing expert tax advice and assistance, the professional staff at Bloch, Rothman, and Associates can also help with a variety of accounting, bookkeeping and payroll options on an individual or business level. Whether you need an explanation for a random tax form, are potentially in need of appropriate representation in tax court, or could use help in potentially a variety of other various services our tax experts are ready and willing to assist. Call 303-321-7160 or contact us
for your initial free no obligation consultation.