estimated tax payments

Estimated Tax Payments – Q&A

Question: How do I know if I have to file quarterly individual estimated tax payments?

Answer: If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

If you had a tax liability for the prior year, you may have to pay estimated tax for the current year; however, if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.

There are special rules for farmers, fishermen, certain household employers, and certain higher taxpayers.

Contact us if you are unsure whether you need to make an estimated tax payment. The first estimated payment for 2012 is due April 15, 2013.

Penalty Relief for Farmers and Fishermen

The Internal Revenue Service announced that it will issue guidance on relief from the estimated tax penalty for farmers and fishermen who are unable to file and pay their 2012 taxes by the March 1 deadline due to the delayed start for filing tax returns.

The American Taxpayer Relief Act (ATRA), which was signed into law in early January affected several tax forms that are often filed by farmers and fishermen, including Form 4562, Depreciation and Amortization (Including Information on Listed Property).

The IRS is providing this relief because delays in the agency’s ability to accept and process these forms may affect the ability of many farmers and fishermen to file and pay their taxes by the March 1 deadline. The relief applies to all farmers and fishermen, not just those who must file late released forms.

Normally, farmers and fishermen who choose not to make quarterly estimated tax payments are not subject to a penalty if they file their returns and pay the full amount of tax due by March 1. Under the guidance to be issued, farmers or fishermen who miss the March 1 deadline will not be subject to the penalty if they file and pay by April 15, 2013. A taxpayer qualifies as a farmer or fisherman for tax-year 2012 if at least two-thirds of the taxpayer’s total gross income was from farming or fishing in either 2011 or 2012.

Farmers and fishermen requesting this penalty waiver must attach Form 2210-F to their tax return and can be submitted electronically or on paper. If you’re a farmer or fisherman and need to request a penalty waiver, do not hesitate to call us. We can help.

Check Your Withholdings

With less than two months remaining in the calendar year, it’s a great time to double check your federal withholding.

Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. But each year millions of American workers have far more taxes withheld from their pay than is required. In fact, the average refund for 2011 was just under $3,000. Although it’s a slight decrease from 2010, ($2,973 vs. $3,003), taxpayers might want to consider adjusting their tax withholding to bring the taxes they must pay closer to what they actually owe–and put more money in their pocket right now.

On the flip side, is that some workers and retirees still need to take steps to make sure enough tax is being taken out of their checks to avoid penalties they might have to pay. Certain folks should pay particular attention to their withholding. These include:

Married couples with two incomes
Individuals with multiple jobs
Dependents
Some Social Security recipients who work
Workers who do not have valid Social Security numbers
Retirees who receive pension payments

Whether you’re starting a new job, retiring, or self-employed, you can use the following tips to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.

Employees

New Job. When you start a new job your employer will ask you to complete Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.

Life Event. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.

You typically can submit a new Form W-4 anytime that you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single; you must give your employer a new Form W-4 within 10 days of that life event.

Self-Employed

Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.

If you’re not sure how much you need to withhold from your paycheck, just give us a call and we’ll figure it out with you.