Estimated tax payments are the most misunderstood issue among our individual taxpayer clients. People tend to think that April 15th is tax filing and payment date. However, you may be under an obligation to make estimated tax payments based on your prior year’s tax liability. The rule is this: You must make payments totaling 90% of what your current tax year’s liability is or 100% of your prior year’s tax liability. So, if last year you had a tax liability of $2,000, then by January 15th you should have made $2,000 of estimated tax payments. If you are employed, you typically have withholding from your paycheck. However, if you have an interest in a partnership or S-Corporation, or have any other type of taxable income on which there was insufficient or no withholding, you have to may estimated payments.
WHO IS THIS OBLIGATION APPLICABLE TO?
People with interests in Partnerships
People with interests in LLCs (taxed as partnerships)
People with interests in sole proprietorship
People with insufficient withholding from their paychecks
People with sources of income other than salary, including dividends, interest, rents, etc.
WHEN IS THE DEADLINE?
The deadline for sending the Estimated Tax Payment for January is January 15th of 2019.
HOW DO I SEND THE PAYMENT TO?
How do I submit payment? - Individuals submit their payments with form 1040-ES.
WHAT HAPPENS IF I DON’T SEND THE PAYMENTS ON TIME?
The penalty for failure to make estimated tax payments is essentially an interest which is around 4% APR of the amount not paid.
1040-ES “Estimated Tax for Individuals”: https://www.irs.gov/pub/irs-pdf/f1040es.pdf
Publication 505 “Tax Withholding and Estimated Tax”: https://www.irs.gov/pub/irs-pdf/p505.pdf