Estimated Tax Payments Discuss the estimated income tax payment system requireme

Question

Estimated Tax Payments

Discuss the estimated income tax payment system requirements in respect to taxpayers with larger amounts of investment income & for self-employed taxpayers' for the following issues:
1. the 4 installment payment dates;
2. when must a self-employed taxpayer start making payments;
3. the threshold payment rules for self-employed taxpayers;
4. special rule for high-income taxpayers;
5. IRS penalties for underpayment of the estimated tax payment; and,
6. the form used to calculate the penalty for an underpayment.

Explanation / Answer

Hi,

1.

Payment for estimated taxes is done four times (quarterly) each year. Here is the payment period for estimated taxes:

If you are going to mail your payment, you must send out the mail with a postmarked on the due date. If the due date falls on a Saturday, Sunday, or legal holiday, the payment would still be considered on time if it was sent out on the next business day.

2. The dates for making the tax payments is same as the installment payment dates as given above.

3. You do not need to pay estimated tax if:

* Note: special rules apply to farmers and fishermen.

The following will be able to get a deduction on their tax return

If you have a gross income below $156,900 then you would be able to get a personal exemption amounting at $4,050.

4. Special Rules:   When your gross salary had been adjusted to more than $150,000 then there would be a need for you to adjust the amount of taxes you pay. You will need to pay estimated tax when you haven’t paid 110% of your tax in the past 2 years.

5.

Individuals are going to be penalized when they make an underpayment from their previous tax return. Penalties would be incurred each day the amount remains unpaid. Penalties will be also applied to those who were not able to pay off their taxes on time.

Taxpayers would not get charged when they only owe less than $1,000 in tax after subtracting their withholdings and credits. Those who don’t receive their income evenly would be able to not get penalized or lower the amount of penalties.

There are also two instances wherein penalties would be waived. First one is when you were unable to pay your estimated taxes due to a casualty, disaster, or other unpredictable scenarios. Second one is when you suddenly retired or you become disabled during the year you need to give off your estimated tax payment.

6. The form used to calculate the penalty for an underpayment can be done in two methods:

a)The Short Method

The IRS method for figuring the penalty on underpayment of estimated taxes is appropriately complicated and confusing. You must use Form 2210, and select either a Short Method or a Regular Method. You can use the Short Method if you paid no estimated tax or made equal payments of estimated tax in every quarter. In the Short Method, you add up all estimated tax payments and withholding amounts, subtract them from the total tax you owe, and multiply the result by .01995. Basically, you're paying a penalty of 1.995 percent on the underpayment.

b)Regular Method

For the Regular Method, Form 2210 comes with detailed instructions -- and you'll need them. Calculating your penalty using the Regular Method involves nine separate line entries, times four quarterly payment periods, as well as a detailed worksheet. Taxpayers with a taste for spreadsheets and a good calculator might enjoy this chore, but if your underpayment is relatively small and your time is valuable, a better alternative is to allow the IRS to make the calculation and send you the bill. If you're wrong, they'll be correcting your figures anyway.

Payment Period Due Date January 1- March 31 April 15 April 1- May 31 June 15 June 1- August 31 September 15 September 1- December 31 January 15 (the following year)

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