For many people, the tax deadline each April is the only time they think about their taxes. Some will owe taxes and use that deadline to pay their taxes in full, while others will use that date to simply file their tax return and wait for their refund.
But for many tax payers, thinking of taxes once a year is simply not enough. In fact, many people are actually required to pay their taxes more than once a year. So how do you know if you are in that group?
You must pay quarterly taxes if:
- You are a freelancer, own your own business, or work a job that does not take taxes out each paycheck.
- S corporation shareholders.
- Corporations that expect to owe more than $500 or more when their return is filed.
- Individuals who expect to owe more than $1000 when their return is filed.
You don’t have to pay quarterly taxes if:
- You receive a salary or wages that withhold estimated taxes from your earnings. Your company does this for you if they have you sign a Form W-4 upon new employment.
- If your estimated taxes are taken out of your earnings, you must also meet these requirements:
- Be a U.S. citizen for an entire year.
- Your most recent tax return must have covered a full 12 months.
- You must not have any tax liability from the previous year.
How to estimate your taxes?
To figure out how much you will owe the IRS, add up your adjusted gross income, taxable income, deductions and credits for the entire calendar year. You can also use the worksheet in Form 1040-ES to help determine how much you owe.
If you overpay your estimated taxes, the remaining amount will be applied to the following years tax return. If you underpay, the amount you didn’t pay will be added to the following year. If either of these happen, make sure to fill out another Form 1040-ES to amend and refigure how much you owe.
If you are unsure about how to pay your estimated taxes, contact a tax professional at Levy Tax & Associates. We will be able to walk you through the steps needed to estimate and pay your taxes. You can call us at 1-800-TAX-LEVY or visit our website to learn more.