Learning About Finance and Money
Who Has To Pay Estimated Taxes?
Jordy De Pijper
The tax deadline is April 15th, so most people think taxes are due by then. However, this is just one of four deadlines throughout the year and not knowing the others could get you fined. Here's what you need to know about when taxes are really due.
What Are the Real Tax Deadlines?
The United States' tax system is a pay-as-you-go system. That means that you should be paying taxes when you earn the money and not just on April 15th.
Most people have their taxes taken out of their paycheck and sent directly to the Internal Revenue Service so that they never have to worry about this. However, if you have any type of income where taxes aren't withheld, you are required to make estimated tax payments at least once every quarter.
What Types of Income Are Subject to Estimated Taxes?
While all types of income are subject to estimated taxes, the real question is who needs to be worried about making estimated tax payments. The answer to that question is anyone with any type of income where taxes aren't withheld.
This includes income from business activities, 1099 jobs, investment gains, and real estate. If you receive payment in full without a deduction for taxes, you need to make sure estimated taxes are paid.
Can Income With Tax Withholding Ever Be Subject to Estimated Taxes?
Even if you have tax withheld from your paycheck, you need to be aware of estimated taxes. Your withholding must be enough to cover your tax bill.
If they are not you need to either increase your withholding or make estimated tax payments.
What Happens If You Don't Pay Estimated Taxes?
Not paying estimated taxes is an expensive proposition. If you wait until April 15th, you will owe far more than your tax liability.
Failure to pay estimated taxes can result in a late payment penalty plus interest on the underpaid amount.
How to Pay Estimated Taxes
Estimated taxes are due quarterly. Therefore, you need to pay one fourth of your expected tax bill each quarter.
You can either use your total taxes from last year or have an accountant estimate your income for this year. You can either set up automatic online payments with the IRS, or you can send a check to the regional office for your area.
To learn more about whether you should be paying estimated taxes, contact a local tax accountant like those at Capital Accounting And Tax Service Inc.
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