Estimated Taxes – Don’t Be Late
The internal revenue service wants you to pay estimated taxes on an as-you-go basis. If you receive wages, taxes are withheld as the wages are earned. However, for other types of income – such as self-employment income, interest, dividends, capital gains, etc. – there is no employer to withhold taxes, but the internal revenue service still wants to collect taxes on an as-you-go basis. Thus, for these types of income, you may have to make “estimated tax payments” or be subject to estimated tax penalties. Estimated taxes must be made in four equal installments, payable on April 15, June 15, September 15, and January 15. The estimated taxes “penalty” is something of a misnomer, in that the penalty is really just interest.
Calculation Of Penalty
Calculation of the penalty is based the internal revenue service underpayment interest rate times your estimated tax underpayment. Avoiding the penalty You generally can avoid estimated tax penalties if any of the following exceptions apply: 1. You did not have any prior year tax liability; 2. Your tax due is less than $1,000. 3. You pay either through withholding (from your job with an employer who withholds taxes from your salary) or through timely estimates either 100% of your prior year’s tax or 90% of your current year’s tax. However, if your income is in excess of $150,000, your estimated tax payments must be at least 110% of your prior year’s tax.