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Who Needs to Make Estimated Tax Payments?

September 03, 2014  |   Tax News   |   Tags: , ,  

When you are an employee you don’t need to worry because the tax work as it will be taken care of by your employer who withholds the taxes from every paycheck and sends the money to the IRS. The employer generally sends the taxes to your state government as well. This is the way you will pay your income taxes without having to worry about them. Also you get a nice refund at tax time.

estimated tax paymentsThe person who has to worry about the tax bill is if you are self-employed, or if you have income other than the salary, you then need to pay estimated taxes each quarter to deal with your tax bill.

When you are self-employed you may owe estimated taxes if you receive income that isn’t subject to withholding, such as:

    Your Interest income
•    Your Dividends
•    Whatever gains from sales of stock or other assets
•    All the earnings from a business
•    And the Alimony you generate

The question basically arises that how you will know if you have to make estimated tax payments. Basically we come to know that by our situation. The regulations are that you must pay your taxes as you go.

If in case at filing time, you haven’t paid enough income taxes through withholding or quarterly estimated payments which will entitle you for a penalty. You may have to pay a penalty for underpayment.

To know whether you need to make the estimated tax payments you have to understand three things. You have to pay estimated tax if you are filing under a sole proprietor. partner, S corporation shareholder. Another thing is that if you are self-employed individual, you generally have to make estimated taxes if you expect to owe tax of $1000 or more while filing your return. Are you a corporation? Then you generally have to make estimated tax payments if you are expected to owe $500 tax or more while filing its return. The people who had tax liability for the prior year must pay estimated tax for the current year.

You must make estimated tax payments using Form 1040-ES. To avoid a penalty, your total tax payments (estimated taxes plus withholding) during the year must satisfy one of the requirements that we have listed.