How To Estimate Tax Payment. Tax paymet Best Practices

Making Estimated Tax Payments

For any income that you receive during the year that’s not subject to withholding any taxes, you may have to make necessary payments to the IRS on your own after you file your return. This likely means that your employer hasn’t deducted the correct amount from your wages and of course, you are not spared from the taxes that apply on that income. In some circumstances during the year, the amount that was withheld from your pay is not sufficient to cover your tax debt; you will have to make estimated payments. The other option for you is to wait and make all payments when you file your tax return but this also has its challenges like you could be charged interest and penalties for any late payments. With the IRS, it’s a pay as you go process.

The schedule for your estimated payments.

As an employee, your employer would have deducted your taxes from your salary and submitted it to the IRS on your behalf before certain deadlines. Similarly, if you are self-employed, you would have to follow a schedule laid out by the IRS. If the deductions from your pay won’t be enough to cover your tax bill by April, you’ll have to follow the same schedule by making estimated payments to cover what is owed. Over the years, some dates have been stipulated by which you should submit your payments to them.

Usually, the first set of payments are due by April 15. All income earned from January 1 to the end of March is covered with this payment. By June 15, you are expected to make another payment. Again, it covers the period from April 1 to May 31. The next payment is due on September 15 and covers June 1 to August 31. You then get some break till January 5 of the next year with this covering September 1 through December 31.

These are IRS deadlines for tax submissions and could shift if they fall on holidays or weekends. You could also make your payment earlier than the set dates.

The following are some tips to help you have a good ongoing relationship with the IRS.

Using last year’s tax return as a guestimate guideline.

If last year’s return was prepared using tax software, you can still use the same software to get back the same data. This will give you an idea of what your current tax returns could be. Your software could also build a projection in some scenarios that will enable your income to be reduced or increased. This is good for planning and can make your calculations for estimated payment more accurate.

You can play catchup

In some situations, beyond your control, they make it impossible for you to make your first or second estimated payments, you can follow up by paying an extra amount in your third scheduled payment. This is helpful as you will be able to avoid any huge tax amount owed when your final payment is due. It’s important to keep up on your payments as much as possible before you file your returns in April to reduce any charges and penalties.

You can make a one-time payment to cover any financial event.

Big financial transactions can be a good time to go over your tax calculations with the possibility of paying any estimated tax gains on the transaction. This can be done at any time of the year. Note that the IRS has a series of deadlines for payments. This creates multiple options for you to get items paid correctly. You can make payment before due dates or even pay off all liabilities in one payment. It’s not necessary to divide all your tax into a series of four quarterly payments.

Keep an eye on penalty triggers.

According to the IRS, you can avoid paying penalties if you’ve paid at least 90% of tax for the current year or 100% tax as shown on the return for last year – whichever is smaller.

Tips for calculating federal taxes in advance.

You can check the following apps to calculate your estimates of federal taxes.

Tax calculation by TaxSlayer: This app, apart from calculating federal taxes can also calculate business profits, unemployment benefits, and Social Security benefits. It also takes care of deductions for home and property, charity donations, education, and IRA contributions. You can check in on the Apple App Store, Google Play or on their website.
TaxCaster by Intuit: This app also calculates federal taxes using your income and other financial figures. You can slide a button or tap the grey arrow (>) to show where you can input numbers. Check for it on the Apple App Store, Google Play or on their website.
TaxMode or Sawhney Systems: Most thorough and preferred of all the apps. It works with limited and full data input and it comes with a free trial. You can check in on the Apple App Store, Google Play or on their web app.
Total Tax Insights by the American Institute of CPAs: This is available as a web app and it calculates federal and state income taxes, property tax, cell phone taxes, and other state and local taxes. You can also compare your tax calculations against two locations – states or local which are an added advantage if you’re thinking of moving.