Do I need to make Estimated Tax Payments?

 

by Jessica A. Sharman

There are a multitude of reasons to make estimated tax payments, and everyone has a different situation. So, why would you need to make an estimated payment?  Consider your individual financial position; has your income increased or did you receive a bonus?  Did you take money out of your retirement plan, sell property or investments?  Maybe you retired and started receiving Social Security income? How about starting a new job or business? 

Any situation that will increase your annual income, should prompt you to think about the effect this will have on your overall tax liability. Making estimated payments to the IRS when your financial situation has changed will help you avoid a tax predicament when it is time to file your tax returns. If you are not sure, contact your financial planner, tax preparer, or visit the IRS.gov for more information. See our website for important payment due dates https://www.taxplaceinc.com/dates-deadlines

Common scenarios that may require making estimated tax payments:

  • You expect to owe at least $1,000 for the current tax year

  • You have Capital Gains in the current tax year

  • You take a large distribution from a retirement plan and you 

    • Are not 59.5 years of age 

  • Have Self-Employment Income as a:

    • Sole Proprietor

    • Partner in a Partnership or LLC

    • Shareholder in an S-Corp

    • Consultant or Independent Contractor receiving a 1099-NEC

  • You receive income such as:

    • Interest

    • Dividends

    • Prizes (e.g., lottery winnings)

    • Alimony

    • Pension

    • Annuity

  • Your wages increase and you have not adjusted your withholding

  • Your itemized deductions have significantly decreased from previous years, and you have not adjusted your withholding on your wages

  • Your available tax credits have decreased from previous years, and you have not adjusted your withholding on your wages

  • Have income from rental property or investments

You can learn more about making estimated tax payments and use the IRS Estimated Tax Worksheet found here https://www.irs.gov/forms-pubs/about-form-9465 

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James Duran