What You Need to Know About Estimated Income Tax
Paying taxes can feel overwhelming, especially when you’re required to make estimated income tax payments throughout the year. If you work for yourself, earn money from investments, or receive income that doesn’t come from a regular paycheck, you need to understand estimated income tax basics.
Keep reading to understand who needs to pay estimated taxes and how to calculate what you owe so you can stay on track.
Key Takeaways
- You calculate your estimated tax by estimating how much money you’ll make, what you can deduct, and what credits you can use.
- Payment deadlines happen four times a year on April 15, June 15, September 15, and January 15 of the following year.
- A trusted Weslaco accountant can help you figure out the right payment amounts, remember due dates, and handle difficult tax situations.
What Is Estimated Income Tax?
Estimated income tax is how the Internal Revenue Service (IRS) collects taxes on money that doesn’t have taxes taken out automatically. For people with regular jobs, their employer takes taxes out of each paycheck and sends the money to the IRS. However, if you make money from working for yourself, from contracted work, from investments, from renting out property, or from other places without automatic tax removal, you’ll need to send estimated income tax payments directly to the IRS.
Who Pays Estimated Income Tax?
Whether you need to pay estimated income tax depends on how you earn your money. You need to pay estimated taxes if:
- You are self-employed, a contracted worker, or run a business as a sole owner, partner, or S corporation owner
- You make money from dividends, interest, or capital gains from investments
- You earn money from renting property or from royalties
- You get alimony, prizes, or awards
- The money taken from your wages or pension doesn’t cover all the tax you owe
If you think you need to make payments based on your situation, a skilled Weslaco CPA can offer professional tax preparation services to ensure that everything is done correctly from the beginning.
When Are Estimated Income Tax Payment Due?
The IRS breaks the tax year into four payment periods. Each period has its own due date. If you miss a deadline, you may have to pay a penalty, even if you expect to get a refund later. Estimated income tax payments are usually due on these dates:
- April 15– This payment covers income earned from January 1 to March 31.
- June 15 – This payment covers income you earn from April 1 to May 31.
- September 15 – This payment covers income earned from June 1 to August 31.
- January 15 of the next year – This payment covers income earned from September 1 to December 31.
Farmers and fishermen follow special rules and usually have only one payment due date instead of four. If you need more time to file your taxes, learning how to request a tax extension gives you extra breathing room without penalties.
Because tax dates can be easy to miss, working with a reliable tax accountant can help you keep track of deadlines and make sure everything is paid on time.
How to Calculate My Estimated Income Tax
You don’t have to figure out how to go about your estimated income tax payments all alone. The IRS gives out Form 1040-ES, which has worksheets to help you figure out your estimated tax payments. The steps include:
- Estimating how much money you’ll make from all places
- Figuring out what you can subtract and what credits you can use
- Finding out your total estimated tax
- Taking away any money already taken from wages or other income
- Splitting what’s left into four equal payments
Of course, that’s all easier said than done. Working with a capable tax accountant is the best way to ensure your taxes are filed correctly and that you’re only paying what you owe.
Get Expert Help From Gonzalez & Arrambide, Inc., This Tax Season
Taking care of your estimated income tax payments is an important part of managing your finances. But trying to do it all alone can lead to mistakes or missed deadlines that cost you money.
At Gonzalez & Arrambide, Inc., our team works with self-employed individuals, small business owners, and anyone who needs help with estimated income tax payments. We’ll help you calculate the right amounts, remember important deadlines, and plan so you’re never caught off guard. Let us handle the complicated tax work while you focus on what you do best.
