Tax Quarters: Do I Need to Pay Estimated Taxes and When?
Your tax responsibilities may
be more extensive than filing the traditional April return (or March for
partnerships and S corporations). Certain occupations and business interests are
required to make quarterly estimated tax payments to avoid penalties at the end
of the tax year.
estimated taxes apply to you?
Estimated taxes are necessary
when the taxes withheld from an employee’s paycheck do not cover their total
taxes for the year. As a business owner, you may have to make estimated tax
payments because you don’t receive a typical paycheck, so payroll taxes aren’t withheld.
They also apply to income without withholdings, such as interest, dividends, or
capital gains. Quarterly tax payments to the IRS help you keep on track, so you
aren’t hit with an unpleasant surprise on April 15.
If you assess your tax
situation entering the year and realize that you’ll end up owing at least
$1,000, you should expect to make estimated tax payments. You should also expect
to make estimated tax payments if you calculate that your withholdings will
cover less than 90% of your tax liability for this year or 100% from the
previous year. Per the IRS, you do not have to pay estimated taxes if you had
no tax liability for the prior year if you were a U.S. citizen or resident for
the entire year and if your previous tax year covered a 12-month period.
Estimated tax obligations are
common for people in the following categories:
Self-employed: Taxes are not automatically withheld from paychecks
Sole proprietors: The business is taxed through a personal income tax return and taxes are not withheld throughout the year
S corporation shareholders: Taxes are funneled through a shareholder’s personal tax return, which amounts unevenly in a given year
can you avoid having to pay estimated taxes?
If you run a business, but
your spouse is an employee elsewhere, consider increasing the amount of taxes
withheld from your spouse’s paychecks to cover any tax deficiencies on your
end. That way, your household will be covered, and you won’t have to pay
estimated quarterly taxes.
do estimated taxes need to be paid? And how?
Estimated taxes are due quarterly. In 2019, the due dates are:
January 15, 2020
As suggested by the IRS, calculate
your adjusted gross income, taxable income, deductions, and credits for the
year. It may help to base this year’s calculations on prior years.
If your income is steady and predictable,
it’s often easiest to estimate your taxes for the entire year and divide the
amount by four. You’ll then submit the same amount to the IRS each quarter. Even
if your calculations are off, you can make the payment adjustments by
completing an additional Form 1040-ES – used
to make estimated tax payments. Excess payment amounts can carry over to future
For inconsistent income, use what you made in the first quarter to project the next three. They are called estimated taxes for a reason, so don’t worry if the payments are not exact, and you learn you owe more money. Don’t forget: There are ways to adjust for variable tax amounts.
is the tax penalty?
A penalty of 5% will be
enforced on any underpayment amount at the point of a quarterly due date. The fine
can add to what you owe at the end of the tax year or can take away from a tax
There is some leniency when it
comes to estimated tax penalties. For example, a penalty can be lifted if
someone is the victim of a casualty or disaster that prevents them from making
necessary payments. A penalty can also be lifted for someone who is at least 62
years old and retired, or who became disabled during the tax year if the
individual could not make payments due to reasonable cause rather than willful neglect.
related tax forms
Form 1040-ES calculates
estimated tax and can help you determine expected income, taxes, deductions, and