How to Correctly Pay Estimated Taxes
Hudson Resident Seeks Advice
Estimated taxes must be paid quarterly to the IRS by anyone that is receiving an income without paying taxes. This money can come from a job, investments, alimony or contest winnings. To send in your estimated taxes, you must complete the form 1040-ES and mail this to the IRS along with your payment. The taxes for each quarter’s income must be sent by the fifteenth of the month following the close of the quarter.
A self-employed resident in Hudson, NH was looking for guidance in understanding the legalities around estimated taxes.
Estimated Taxes are Required for Anyone Receiving Non-Taxed Income
Employees working for a business and receiving payroll that have completed a W4 do not need to file estimated taxes, as their taxes are already being withheld by their employer. The most common payers of estimated taxes are self-employed individuals and independent contractors. However, the income from investments also requires an estimated tax filing. Other income that should be claimed each quarter include any large contest winnings or alimony you have received. If your estimated taxes are not paid by the fifteenth of the month after the close of the quarter, you may be subject to an IRS penalty.
Calculating Your Estimated Taxes
The preferred method by the IRS for calculating your estimated taxes it to base the figure on your anticipated income for the year and divide this by four. For self-employed individuals, with income that may fluctuate during the year, this can be a challenge. In this scenario, you can instead base your estimated tax payment on each quarter’s profits and thus taxable income.
It is in your best interest to try to calculate your estimated taxes as closely as possible. If at the end of the tax year, you are left owing $1,000 or more this indicates that you have underpaid your tax bill. This could result in penalties and interest from the IRS.
The Hudson resident turned to the professionals at Merrimack Tax Associates to assist him in accurately calculating his estimated taxes. He can now rest assured that he will not incur a penalty from the IRS.