To figure your estimated tax, you must figure your
expected adjusted gross income, taxable income, taxes, deductions, and
credits for the year.When figuring your estimated tax for the
current year, it may be helpful to use your income, deductions, and credits
for prior year as a starting point. Use your prior year's federal tax return
as a guide. You can use the worksheet in Form 1040-ES to figure your
estimated tax. You will need to estimate the amount of income you expect to
earn for the year. If you estimated your earnings too high, simply complete
another Form 1040-ES worksheet to refigure your estimated tax for the next
quarter. If you estimated your earnings too low, again complete another Form
1040-ES worksheet to recalculate your estimated tax for the next quarter.
You want to estimate your income as accurately as you can to avoid
penalties.You must make
adjustments both for changes in your own situation and for recent changes in
the tax law.
For estimated tax purposes, the year is divided
into four payment periods. Each period has a specific payment due date. If
you do not pay enough tax by the due date of each of the payment periods,
you may be charged a penalty even if you are due a refund when you file your
income tax return.
Using the Electronic Federal Tax Payment System (EFTPS)
is the easiest way to pay your federal taxes for individuals as well as
businesses. Make ALL of your federal tax payments including federal tax
deposits (FTDs), installment agreement and estimated tax payments using
EFTPS. If it is easier to pay your estimated taxes weekly, bi-weekly,
monthly, etc. you can, as long as you have paid enough in by the end of the
quarter. Using EFTPS, you can access a history of your payments, so you know
how much and when you made your estimated tax payments.
If you did not pay enough tax throughout the year,
either through withholding or by making estimated tax payments, you may have
to pay a penalty for underpayment of estimated tax. Generally, most
taxpayers will avoid this penalty if they owe less than $1,000 in tax after
subtracting their withholdings and credits, or if they paid at least 90% of
the tax for the current year, or 100% of the tax shown on the return for the
prior year, whichever is smaller. There are special rules for farmers and
fishermen. However, if your income is received unevenly during the year, you
may be able to avoid or lower the penalty by annualizing your income and
making unequal payments. Use Form 2210, Underpayment of Estimated Tax by
Individuals, Estates, and Trusts, to see if you owe a penalty for
underpaying your estimated tax.
The penalty may also be waived ifthe failure to make estimated
payments was caused by a casualty, disaster, or other unusual circumstance
and it would be inequitable to impose the penalty, or you
retired (after reaching age 62) or became disabled during the tax year for
which estimated payments were required to be made or in the preceding tax
year, and the underpayment was due to reasonable cause and not willful
neglect.You should also use
Form 2210 to request a waiver of the penalty.
Estimated tax is the
the method used to pay tax on income
that is not subject to withholding. This includes income from
self-employment, interest, dividends, alimony, rent, gains from
the sale of assets, prizes and awards. You may have to pay estimated tax
if the amount of income tax being withheld from your salary, pension, or
other income is not enough. Additionally, estimated tax is used to pay
income tax and self-employment tax, as well as other taxes and amounts
reported on your tax return. Always
keep in
