Although your tax return is not “due” until April 15th of the following year, you are generally required to prepay your tax during the year.
According to the IRS, “Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.”
Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
You may have to pay estimated tax for the current year if your tax was more than zero in the prior year.
If you receive salaries and wages, the best option is to ask your employer to withhold more tax from your earnings. This will ensure you don’t end up paying too much or too little tax for your business. Your annual tax bill is calculated on the last day of June, assuming that you’ve filed your annual return in time. To do this, file a new Form W-4 with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.
If you meet all three of the following three conditions, you don’t have to pay estimated tax for the current year.
You didn’t have to pay income tax for the past year if your total tax was zero or you didn’t have to file a tax return.. For additional information on how to figure your estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax.
If you are not having your taxes withheld from your wages or you are not making estimated tax payments, you may face a penalty for underpayment of your estimated taxes. Most taxpayers who own less than $1,000 in tax after withholdings will avoid a penalty. Or if you paid at least 90% of the tax for the current year or 100% of the taxes owed on the previous year’s tax return, penalties can be avoided. Other factors, like disability, retirement, or an unusual circumstance, can also allow your tax penalty to be waived.
If you have any questions about estimated taxes, you should definitely speak with a Tax accountant about your specific situation. They can guide you on the right course of action for you.
And if you have received any communication from the IRS about any tax penalties and/or issues, please contact our offices and take advantage of our FREE Phone Consultation to learn how you can respond to the IRS.