Self Employed? Should You Be Making Estimated Payments?

Who Should Be Making Estimated Payments?

1.     People who are self-employed.

2.     People whose non-wage income is increasing, or expected to increase, in the current year.

3.     People who have done well on the stock market exchange.

4.     People who have gotten a large inheritance, or other windfall, with assets that produce income.

5.     For business owners receiving wages, if you expect to owe extra taxes, have your tax professional manipulate your payroll tax withholding before year-end. That way, you never have to make estimated payments.

When Should You Be Making Those Payments?

When it comes to estimated payments, the taxpayer should make quarterly payments. However, the definition of quarterly in the tax code can mean two months or four months. It is best to consult a tax professional to answer this question for your particular situation. 

How Much Must You Pay?

Typically, you must only pay estimates if:

1.     You expect to owe $1,000 or more beyond any payroll withholding and;

2.     Your withholding or other tax credits will be less than 90 percent of the tax you expect to owe on your current year tax return. If your income falls into the high-income levels for the year, you must pay 100 percent of what you expect to owe; or

3.     Your withholding or other tax credits will be less than 100 percent of the tax return shown on your prior year’s tax return. If you expect to have losses from the business, don’t worry about making estimated tax payments on the business.

Again, this is meant to be a brief overview on estimated payments. Consult a tax professional for the best advice regarding your particular tax situation.