Many of your clients may have to pay estimated taxes on income that is “not subject to withholding,” according an IRS Tax Tip released Friday. The IRS has provided “Six Tips for Paying Estimated Taxes.” If your client underpaid their taxes in 2010 and did not send estimated payments to the IRS they may be subject to penalties in addition to the tax they owe.
Generally, the IRS states in Publication 505, a taxpayer must pay estimated taxes in 2011 if they expect they will owe the IRS more than $1,000 for 2011 after netting out “withholding and refundable credits;” and if the taxpayer’s “withholding and refundable credits” are “expected to be the smaller of: a. 90% of the tax to be shown on your 2011 tax return, or b. 100% of the tax shown on your 2010 tax return. Your 2011 tax return must cover all 12 months.” Use Form 1040ES, “Estimated Tax for Individuals,” to file.
Extensions for Filing 2010 Returns