Are you self-employed? Do you have investment income, prize or lottery winnings, or other income that doesn't traditionally have income tax withholdings? If you answered yes to any of these, you may need to make an estimated tax payment by September 17.
When you work for someone and you receive a paycheck, you've probably noticed that taxes are taken out of your wages. That's because the U.S. tax system is based on pre-paying your potential income tax liability. That's why you either get a refund (because you've paid in too much), or you owe (not enough was taken out throughout the course of the year) when you file your tax return. When you claim deductions and credits, you lower your tax liability, thereby making your refund larger, or the amount you owe smaller. But, I digress.
While employers take care of the pre-payment for you, there are many other sources of income that do not provide an automatic withholding of taxes. Taxpayers with these sources of income often end up owing money when they file their income taxes. And it's important to note that if you owe more than $1,000 in taxes come tax time, you may be subject to a penalty for under paying your tax bill. So, if you are one of the taxpayers with alternate income, how can you avoid the large tax bill and associated penalties when you file your taxes?
- You can pay estimated taxes using IRS Form 1040-ES and the equivalent state form. Estimated taxes are paid every quarter, April 15, June 15, September 15 and January 15. This year, September 15 is a weekend, so the third quarter payment is due Monday, September 17. The IRS and your state Department of Revenue all accept estimated tax payments.
- If you have no withholdings and your income fluctuates from year to year, you should gather your income and expenses to date and estimate your income and any withholding for the year. Form 1040-ES instructions provide a worksheet to help you calculate your estimated income and liability. Once you determine the amount of taxes you should pay, send in your payment by the due date of the current quarter.
If you need to make estimated payments and have not done so, you can catch up now by sending the total for the first three-quarters by September 17.
The safest, most secure way to make your estimated payments is electronically. More information on paying your tax electronically can be found at www.irs.gov/e-pay. If you must make payments by mail, make the check payable to "United States Treasury," with the following information in the memo field: "2012 Form 1040-ES" and your social security number.
If you're still not sure what to do, tax professionals are available year round, and can help you determine what is best for your unique situation.