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Quick Guide on Paying Estimated Income Tax

Quick Guide Estimated Income Tax

Do I have to pay Estimated Taxes?

Overview

In the United States income taxes are to be paid on a regular basis throughout the year. As a self-employed individual you don’t have the luxury of your employer automatically deducting and remitting income taxes from your pay to the government. Instead, you must manage that process on your own. Below is a quick guide on how to do so. 

*Note – special rules may apply if you are a farmer or fisherman.

Do I need to pay?

Anyone that does not have enough withheld will have to pay. This can include W-2 wage earners.

The IRS rule is that you must make estimated payments if…

  1. You will owe at least $1,000 in federal taxes at the end of the year. $500 for corporations AND
  2. Your withholdings did not equal at least the smaller of 
    A. 90% of your current year tax, or
    B. 100% of your prior year tax (110% if your prior year Adjusted Gross Income (AGI) was over $150,000. $75,000 if married filing separately)
estimated income tax filing

When should I pay (calendar year taxpayer)?

**Note – if the date listed below falls on a weekend or a holiday the next business day is the due date

Quarter 1 Payment Due Date: April 15th

Quarter 2 Payment Due Date: June 15th

Quarter 3 Payment Due Date: September 15th

Quarter 4 Payment Due Date: January 15th of the following year

How much should I pay?

At Midwest CPA our recommended method for calculating your quarterly tax payments is to review your finances at the end of each quarter and make a reasonable estimate of how much you will owe in taxes for the year based off of expected income and deductions. Then make a payment that will set your entire amount paid to date equal to your estimated tax liability for the year multiplied by the percentage of the year that has passed.

If you want to learn more about ways you can potentially pay less here are some strategies many entrepreneurs miss.

Do I need to breakout my payment between self-employment taxes and federal income taxes?

No.

How do I pay?

You can make payments through your IRS account by logging in here.

You can also make payments through the IRS2GO app, IRS Direct Pay, the U.S. Treasury’s Tax Payment System, or at some IRS retail partners.

What other resources are available to me?

While we’ve got you here, why not take a look at our CPA services.

Disclaimer

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, or investment advice. You should consult a qualified legal or tax professional regarding your specific situation.

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