What’s The Deal With Estimated Taxes?

Did I really make that much?

Where did all my money go?

How am I going to pay my taxes?

Some of you may know this feeling: it’s April, you just finished your tax return for last year, and you owe A BUNCH OF MONEY. Maybe you’re sitting down with your accountant and explaining that you don’t have the money to pay your taxes because you just really needed a vacation, or that the Zeppelin 2.0 is going to be a great investment one day, or maybe he’s telling you that pet psychics aren’t deductible (didn’t see that coming).

How do you avoid being in this situation?

Make ESTIMATED TAX PAYMENTS.

If you’re self-employed or have significant non-wage income (like investments, alimony, or gains from the sale of assets), estimated tax payments are a great way to ensure you aren’t hit with a big surprise in April. Plus, if you don’t make them you may be subject to penalties when you file your return (talk about adding insult to injury!). Here are some quick facts about estimated tax payments:

  • You generally have to send in either 90% of the current year’s tax or 100% of last year’s tax to avoid penalty (but the penalty generally isn’t assessed if you owe less than $1,000 on your tax return)
  • You’re supposed to make your estimated tax payments 4 times per year, normally April 15th, June 15th, September 15th, and January 15th (of the next year)
  • You can make your estimates either by mailing in a check (with Form 1040-ES) or via the INTERNET (eftps.gov)
  • If you make the first 3 estimated tax payments but your income is lower this year than in years’ past, you may not have to make the 4th one
  • There are different rules for calculating estimated tax payments for Farmers and Fishermen
  • If you should be making estimated tax payments we will set you up with them when we finish last year’s return

If you make your estimated tax payments you increase the chances you’re going to have a stress free (and surprise free) tax time… doesn’t that sound great?

Not sure if this applies to you? Reach out to me by emailing mike@alfanocpa.com – even if you aren’t a current Alfano & Company client we will review your situation and advise you, before you spend all your money on that dream vacation!

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Mike Haydin, EA

Have fun out there!