What you need to know about making IRS Estimated Tax Payments

Estimated tax payments are payments made as deposits to the IRS throughout the year. The estimated payments or ES payments might be required if you are self-employed or are a business owner. Making estimated tax payments can help you avoid underpayment penalties from the IRS and help you not to owe taxes on the due date. Here's what you need to know about estimated taxes and how to make them.

Estimated Tax Payments

What are estimated tax payments and why do you need to make them

When you are self-employed, it is your responsibility to pay all the federal income taxes and self-employment taxes that you owe—including Social Security and Medicare taxes. This is due in a lump sum by April 15, just like for people who are employed with regular wages. Estimated tax payments are a way of breaking down the lump sum into more manageable amounts throughout the year and ensure that you have sufficient funds when tax time arrives. Quarterly estimated tax payments can be as simple as calculating your expected self-employment income for the year and then subtracting your deductions from that number to estimate how much you will owe in taxes. That estimated amount is then split into four quarterly payments to help spread out the cost over a period of time.

How to calculate your estimated taxes

For anyone considering their estimated taxes for the year, understanding how to calculate them is essential. Generally, you'll need to have your 1040 form ready- if it's not handy, you can use last year's 1040 as a placeholder. In either case, you'll subtract any payments or credits already made throughout the year from your current tax due to get an idea of what your estimated taxes should be. It's important to keep in mind that by failing to pay estimated taxes on time, you risk incurring penalties from the IRS which could lead to increased costs down the road- so always plan ahead when calculating and paying!

When and how to make your estimated tax payments

Making estimated tax payments can be an important part of managing taxes throughout the year. Generally speaking, it is best to make such payments four times a year:

• April 15th

• June 15th

• September 15th

• January 15th of the following year

Payments can be made online with direct debit or online payment services as well as by mail using check or money order. If you choose to mail your payment, it is essential that you postmark your payment on or before the due date. This will ensure prompt delivery and help you avoid any late penalties. Knowing when and how to pay estimated taxes can be a critical step in making sure you stay on top of your taxation obligations and have one less financial worry on the horizon.

What happens if you don't make your estimated tax payments

If you know you owe taxes and don't make your estimated payments, the IRS can penalize you for failing to pay. Depending on what type of tax is owed, this penalty could be a percentage of the balance due or a specific dollar amount for each month that the payment is late. For example, if you fail to pay quarterly estimates for self-employment income, you could be subject to a penalty of 5 percent per month of the unpaid taxes. Additionally, once everything is due and paid - including any penalties accrued - interest will also be charged on the remaining amount. Making estimated payments not only helps you avoid penalties and interest, but can help alleviate potential stress when it comes time to file your taxes.

Tips for making your estimated tax payments on time

Making estimated tax payments on time is essential for avoiding owing more than you can afford. A few easy steps can help you remember to pay your taxes in full and on time: make sure to be aware of the due dates of your quarterly payments, set reminders a week before each payment comes due, and always save copies of your payment documents in a safe place. Taking these measures will ensure that the estimated taxes due from income that is from sources other than employer withholding are properly paid. Making sure to pay expected taxes on time with the right amounts allows for peace of mind when it comes time for filing your annual income tax return.

Estimated taxes are important for keeping the IRS happy and ensuring you don't end up owing a ton of money come tax season. While it may seem daunting to calculate and make estimated tax payments, it's actually not that difficult - especially if you use our tips! And if you're worried about making mistakes or being late with your payments, don't be - we've got you covered there, too. So take a deep breath, grab a calculator, and get ready to tackle your estimated taxes like a pro!