What’s the Story on Estimated Taxes?

Posted by Jeffrey Siegel on September 3, 2019

Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments. If you are in business for yourself, you generally need to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax.

What’s the Story on Estimated Taxes? 

If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.

Who Must Pay Estimated Tax

Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.

Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.

You may have to pay estimated tax for the current year if your tax was more than zero in the prior year.

Who Does Not Have To Pay Estimated Tax

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. To do this, file a new Form W-4 with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.

You don’t have to pay estimated tax for the current year if you meet all three of the following conditions.

  • You had no tax liability for the prior year
  • You were a U.S. citizen or resident for the whole year
  • Your prior tax year covered a 12-month period

You had no tax liability for the prior year if your total tax was zero or you didn’t have to file an income tax return.

Need back tax help in Kansas City?  Bank account levied in Kansas City?  Paycheck garnished in Kansas City?  Lien on business or home in Kansas City? If you or a client need help fighting off the IRS, call Jeffrey R. Siegel, your Kansas City tax attorney.  We help with IRS liens, wage garnishments, levies, offers in compromise, innocent spouse relief, federal employment tax, Trust Fund Recovery Penalty and installment agreements.  Bring back some stability to your life, and call (913) 735-4829.