Estimated tax payments: April 15 is not the only day taxes may be due

People who are self employed usually are required to pay estimated taxes quarterly.

U.S. taxpayers are groomed to focus on April 15 as Tax Day. While the annual April due date is important for most, in reality, tax collection is an activity that is in constant motion.

If you have a job that pays wages, your employer will make payroll deductions from your checks and forward the money to the IRS (and your state tax authority and the Social Security and Medicare agencies). So in essence, tax payments are ongoing throughout the year and April 15 is the date you and the IRS settle up. If you overpaid for the year, you get a refund. If you underpaid, taxes are due with the return.

Estimated quarterly taxes

If you are not paid wages from an employer, but rather are self employed, the IRS requires you to estimate your income and pay the taxes due on them by quarter. Generally, the taxpayer must estimate adjusted gross income, taxable income, deductions, credits and taxes due. The IRS publishes Form 1040-ES (or 1120-W for corporations) to assist with these calculations.

The quarterly payment due dates vary each year, but are approximately the 15th of April, June, September and January. It is important that anyone who may owe quarterly estimated taxes pay them on time, because not doing so could result in an IRS monetary penalty.

In addition, an underpayment penalty can be incurred in some situations if estimated taxes paid are too low. In certain instances, the penalty might be waived or reduced if the "underpayment was due to reasonable cause and not willful neglect," such as a natural disaster or sudden disability.

Taxpayers impacted

Being a sole proprietor is not the only situation that can trigger the obligation to pay estimated taxes. Other circumstances and earnings that also may require the payments, depending on the amount, include:

  • Income from pensions (if deductions are not enough)
  • Interest
  • Capital gains
  • Alimony or spousal support
  • Prizes
  • Partnership earnings
  • Income as an S corporation shareholder
  • Corporate earnings

According to the IRS, estimated tax is not due in a year in which:

  • No tax liability was incurred in the previous year, meaning the tax due was nothing or a return was not required for the level and type of earnings
  • You were a citizen or U.S. resident for the entire previous year
  • The previous tax year was a 12-month period

Special estimated-tax rules apply to farmers and fishermen.

This is a broad introduction to a complicated tax topic. An attorney can answer questions about estimated taxes and can provide assistance if the IRS is asserting underpayment or failure to file, or is assessing a penalty.

The lawyers at Brown, PC, in Fort Worth advise and represent taxpayers residing in Texas, across the nation and around the world

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