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Taxpayers may need to pay estimated taxes to the IRS during the year if they have income that is not subject to withholding. This depends on what they do for a living, as well as the types of income that they receive.
The IRS recently offered these tips to help explain estimated taxes and how to pay them.
- If taxpayers have income from self-employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, then they may have to pay estimated tax.
- As a general rule, taxpayers must pay estimated taxes in 2012 if both of these statements apply: 1) The taxpayer expects to owe at least $1,000 in tax after subtracting their withholding (if any) and tax credits, and 2) They expect withholding and credits to be less than the smaller of 90 percent of their 2012 taxes or 100 percent of the tax on their 2011 return. Note that special rules apply for farmers, fishermen, certain household employers, and certain higher income taxpayers.
- Sole proprietors, partners and S corporation shareholders generally must make estimated tax payments if they expect to owe $1,000 or more in tax.
- To figure estimated tax, include expected gross income, taxable income, taxes, deductions, and credits for the year. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals. Form 1040-ES includes instructions, worksheets, schedules, and payment vouchers. However, the easiest way to pay estimated taxes is electronically through the Electronic Federal Tax Payment System (EFTPS). Estimated tax may also be paid by check or money order using the Estimated Tax Payment Voucher, or by credit or debit card.
- The year is divided into four payment periods, or due dates, for estimated tax purposes. Those dates generally are April 15, June 15, Sept. 15 and Jan. 15 of the next or following year.
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See AdvisorOne's 22 Days of Tax Planning for 2012 Special Report.