Use a Tax Organizer to Estimate Quarterly Taxes (1)
For many taxpayers, a tax organizer is a critical component of keeping Uncle Sam happy. A reputable tax service provider works with you to customize an organizer to perfectly suit your needs and goals. Estimated taxes — also known as quarterly taxes — are a good idea for many and a requirement for some. If you do not have enough taxable income withheld throughout the year from an employer, you may need to send quarterly payments to the IRS. If you do not have enough withheld (or any at all) and you do not pay enough estimated/quarterly taxes throughout 2016, the IRS may penalize you next April.
How can you figure out if you are withholding enough? Your CPA can tell you. It depends on many factors, including your tax bracket. You may also need to pay an additional amount for state taxes (rates vary by state, with some boasting zero income tax) and/or county taxes.
No Such Thing as a Free �Ц
While income is generally thought of as revenue from working, owning your own business, etc., taxes must also be paid on interest, rent, prizes, dividends, alimony and more. For business owners, your estimated tax payment can cover both income and self-employment taxes. Different taxpayers have to use different forms to file their estimated taxes, which are due in April, June, September and January. Sole proprietors, self-employed people and S corporation shareholders must use Form 1040-ES, Estimated Tax for Individuals. Corporations must use Form 1120-W, Estimated Tax for Corporations. It can be hard to tell whether you will get dinged with an IRS penalty for not paying estimated taxes (or enough in estimated taxes), but a tax professional can tell you that if you anticipate owing more than $1,000 in taxes each year, it is best to pay estimated taxes. For corporations, that figure drops down to $500. Farmers and fishermen fall under a different category, which is outlined in IRS Publication 505.
Paying it Forward
You can best estimate how much you should pay in quarterly taxes in two ways: Ask your CPA, or use the Form 1040-ES worksheet. A lot of guessing is involved, but you can use last year’s income information as a foundation (if you have similar income year after year). However, if you’re off, do not worry. If you pay too much, you will get a refund, and if you do not pay quite enough, you can pay the remaining balance in April. Bear in mind that it is important to post your estimated payments on time. The easiest solution is using the Electronic Federal Tax Payment System, or mail in your payment via snail mail. Via the online system, you can make payments as often as you wish — daily, weekly, monthly, etc. All that matters is that by the time your quarterly payment is due, the full amount has been sent. Alternatively, you can also pay via electronic check over the phone. Some taxpayers have been assessed a penalty for failing to make payments on time, even if they ultimately paid appropriate quarterly taxes, so keep an eye on the calendar. Your strongest secret weapon is your CPA. With tax laws, benefits and credits constantly changing, you deserve an expert in your corner. Using a tax organizer is the best way to keep track of your income and expenses and will make your CPA’s job easier, so you won’t have any surprises when tax day rolls around next year.
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