A lot of taxpayers, especially new clients, have asked me if estimated tax payments are absolutely necessary. They often tell me this is their first time hearing about it, and their previous tax preparers never told them about this. When I point out the estimated tax payment penalty calculated on their tax returns on their taxpayers prepared by their previous preparers, then they realize they have been paying the penalty for a long time.
This is unfortunate as there is nothing new about estimated tax payments. Not everyone needs to make one, but here is everything you need to know about it.
Who needs to make estimated tax payments:
If you owe more than $1,000 in taxes when you file you file your tax return, you may be required to make estimated tax payments. Failure to do so may be subject to Failure to Pay Proper Estimated Tax Penalty.
Unfortunately, we do not often know if we will owe taxes when we file, not to say how much. Over time, the IRS has allowed the "Safe Harbor" methods to calculate and determine whether you would be subject to penalty. If you satisfy one of the two safe harbor amounts, the IRS will not charge a Failure to Pay Proper Estimated Tax Penalty.
If you have paid at least:
1. 90% of the tax you owe for the current year, or
2. 100% (or 110%) of last year's total tax. Use the total tax shown on the tax return before applying estimated payments, withholding, or any refundable tax credits.
a. If your adjusted gross income is less than $150,000 (or $75,000 if your filing status is married filing separately), pay 100% of your prior-year tax;
b. If your adjusted gross income is more than $150,000 (or $75,000 if your filing status is married filing separately), pay 110% of your prior-year tax.
Some taxpayers may have more complicated tax situation, such as a change in filing status, employment, number of dependents, income, etc. We can schedule a tax planning session to help manually calculate your estimated tax payment requirements.
When To Make Estimated Tax Payments
Estimated tax payments for individual taxpayers are due on April 15, June 15, September 15, and January 15.
How To Make Estimated Tax Payments
If you are our existing clients, we generate estimated tax payment vouchers with the suggested payment amounts and include them in the final tax return packet for the prior year. Check your tax return packet for the payment vouchers.
- Paper Check
You may mail the payment voucher along with a paper check to the IRS. The address of the IRS Service Center is printed on the estimated tax payment vouchers we generate for you.
The date of the U.S. postmark is the date of payment.
The only mailing methods the IRS recognizes as legitimate proof of mailing is certified mail, registered mail, and certain private delivery services (USPS priority mail alone is not a legitimate proof of mailing). Using one of these methods with proper postage, proper postmark, and a return receipt is highly recommended.
- Direct Withdrawal
You may setup a direct withdrawal from your bank account by using the IRS Direct Pay website at https://www.irs.gov/payments/direct-pay.
You may also pay by credit or credit with a fee at https://www.irs.gov/payments.
Make sure your bank account has sufficient funds for the payment. The IRS charges a separate penalty for any electronic payment that is rejected and returned in additions to additional penalty and interest for the unpaid taxes.
- Automatic Withdrawal
For our existing clients, we may be able to help setup an automatic withdrawal for you. This, however, needs to be done when we electronically file your tax return with the IRS for the previous year. Let us know if you want this option.
Why Choose Trans-Pacific Accounting and Business Consuting
International-related taxation in the Internal Revenue Code is extremely complex and confusing. Many seasoned CPAs and tax return preparers are not familiar with the filing requirements. It is very common for them to miss reporting foreign income, forms, and information. The IRS has heightened its enforcement on non-compliance on foreign-related reporting, and penalties are generally extremely high. Not sure if you need to file or if your current CPA or tax return preparer is preparing your tax return correctly? Not sure if you are filing all the required forms? Contact us now for a free consultation.
This is unfortunate as there is nothing new about estimated tax payments. Not everyone needs to make one, but here is everything you need to know about it.
Who needs to make estimated tax payments:
If you owe more than $1,000 in taxes when you file you file your tax return, you may be required to make estimated tax payments. Failure to do so may be subject to Failure to Pay Proper Estimated Tax Penalty.
Unfortunately, we do not often know if we will owe taxes when we file, not to say how much. Over time, the IRS has allowed the "Safe Harbor" methods to calculate and determine whether you would be subject to penalty. If you satisfy one of the two safe harbor amounts, the IRS will not charge a Failure to Pay Proper Estimated Tax Penalty.
If you have paid at least:
1. 90% of the tax you owe for the current year, or
2. 100% (or 110%) of last year's total tax. Use the total tax shown on the tax return before applying estimated payments, withholding, or any refundable tax credits.
a. If your adjusted gross income is less than $150,000 (or $75,000 if your filing status is married filing separately), pay 100% of your prior-year tax;
b. If your adjusted gross income is more than $150,000 (or $75,000 if your filing status is married filing separately), pay 110% of your prior-year tax.
Some taxpayers may have more complicated tax situation, such as a change in filing status, employment, number of dependents, income, etc. We can schedule a tax planning session to help manually calculate your estimated tax payment requirements.
When To Make Estimated Tax Payments
Estimated tax payments for individual taxpayers are due on April 15, June 15, September 15, and January 15.
How To Make Estimated Tax Payments
If you are our existing clients, we generate estimated tax payment vouchers with the suggested payment amounts and include them in the final tax return packet for the prior year. Check your tax return packet for the payment vouchers.
- Paper Check
You may mail the payment voucher along with a paper check to the IRS. The address of the IRS Service Center is printed on the estimated tax payment vouchers we generate for you.
The date of the U.S. postmark is the date of payment.
The only mailing methods the IRS recognizes as legitimate proof of mailing is certified mail, registered mail, and certain private delivery services (USPS priority mail alone is not a legitimate proof of mailing). Using one of these methods with proper postage, proper postmark, and a return receipt is highly recommended.
- Direct Withdrawal
You may setup a direct withdrawal from your bank account by using the IRS Direct Pay website at https://www.irs.gov/payments/direct-pay.
You may also pay by credit or credit with a fee at https://www.irs.gov/payments.
Make sure your bank account has sufficient funds for the payment. The IRS charges a separate penalty for any electronic payment that is rejected and returned in additions to additional penalty and interest for the unpaid taxes.
- Automatic Withdrawal
For our existing clients, we may be able to help setup an automatic withdrawal for you. This, however, needs to be done when we electronically file your tax return with the IRS for the previous year. Let us know if you want this option.
Why Choose Trans-Pacific Accounting and Business Consuting
International-related taxation in the Internal Revenue Code is extremely complex and confusing. Many seasoned CPAs and tax return preparers are not familiar with the filing requirements. It is very common for them to miss reporting foreign income, forms, and information. The IRS has heightened its enforcement on non-compliance on foreign-related reporting, and penalties are generally extremely high. Not sure if you need to file or if your current CPA or tax return preparer is preparing your tax return correctly? Not sure if you are filing all the required forms? Contact us now for a free consultation.