What are estimated taxes and how do I know if I owe them?
June 15, 2015 is this year’s date for second quarter estimated tax payments. While there are many who pay their taxes this way, we receive several inquiries as to what this tax is. According the IRS, “Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.”
Basically it is your with-holding tax for those of us who do not received a W-2 paycheck. Most small business owners are well aware that they are liable for estimated taxes. The problem can arise from those individuals who may receive a cash windfall in the year and don’t set aside money to cover the tax liability for that extra income. Come tax time, they may not only owe a large tax bill but they may be liable for penalties.
Some of the more frequently asked questions include:
1. What are the filing dates for federal quarterly estimated tax payments?
Payment Period Due Date
January 1 – March 31, 2015 / Due April 15, 2015
April 1 – May 31, 2015 / Due June 15, 2015
June 1 – August 31, 2015 / Due September 15, 2015
September 1 – December 31, 2015 / Due January 15, 2016
*You do not have to make the payment due on January 15, 2016, if you file your 2015 tax return by February 1, 2016 and pay the entire balance due with your return.
2. How do I make federal quarterly estimated payments?
The IRS provides various methods for making 2015 quarterly estimated tax payments:
You may credit an overpayment on your 2014 tax return to your 2015 estimated tax;
You may mail your payment with a payment voucher form, Form 1040-ES;
You may pay by phone or electronically using the Electronic Federal Tax Payment System (EFTPS); or
You may pay via electronic funds withdrawal with your 2014 e-filed return.
3. What if I do not pay enough federal income tax in a timely manner for the calendar year 2015?
Generally, if you do not pay enough tax in a timely manner either through withholding or making estimated tax payments, you may be required to pay a penalty.
Please refer to IRS Publication 505, Tax Withholding and Estimated Tax, for a detailed discussion of the underpayment penalty, including exceptions to this penalty.