Quarterly Estimated Payments

April 27, 2012

Every year, “tax day” represents not only the day personal income taxes are due, but for those individuals who file quarterly individual estimated payments, it is also the day that quarterly payments are due.

Not sure if you need to file quarterly individual estimated payments? Estimated tax payment is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, or gains from the sale of assets, prizes and rewards. You may also need to pay estimated tax if the amount of income tax being withheld from your paycheck, pension, or other income is not enough.

To estimate if you need to pay tax on income not subject to withholding or on other income from which not enough tax is withheld, you need to calculate if the total tax you’ll owe on your annual income tax return will be covered by the amount of tax you have already had either withheld from wages and other payments, paid in earlier estimated payments for the year, or credited to your account from adjustments or overpayments to previously filed returns.

As a general rule, you should make estimated tax payments if you:

1. Will owe at least $1000 in tax for 2012, after subtracting your withholding and credits
2. Expect your withholding and credits to be less than the smaller of:
a. 90% of the tax to be shown on your 2012 return (66 2/3% for farmers and fisherman), or
b. 100% of the tax shown on your 2011 tax return (if your 2011 tax return covered all 12 months of the year)

So, you’ll need to file quarterly estimated tax payments, now what? It’s time for you to become very familiar with Form 1040-ES, which will help you calculate and pay your estimated tax. To figure your estimated tax, you will need to calculate your expected AGI (Adjusted Gross Income), taxable income, taxes, deductions, and credits for the year. It is helpful to have your previous year’s federal tax return in hand when figuring your estimated tax.

And if the thought of quarterly calculations still makes you weak, remember we are here to help at Wallace & Associates. Use our expertise to access the most current new developments in the tax laws to manage both your current and future tax liabilities. Our experience in tax preparation provides a quality of service that is beyond comparison