How to Estimate Your Income Taxes

Tom Walpole, CPA joined Katrina Irwin on News 8 at Sunrise Monday.  He talked about paying Estimated Income Taxes

Now that tax season has passed some people were surprised with either their refunds of the checks they had to write. For some people, they had to write a fair sized check and it may have included a penalty. There is a penalty for not paying an adequate amount of taxes during the year. Waiting until the due date to pay will trigger a penalty.

People who get periodic paycheck have taxes taken out as they get paid. However, many people don't have taxes withheld and they are required to pay estimated payments on a quarterly basis. This is so the government has cash flow to keep running.

Things to know:
1. If you have self-employment income, rent, alimony, interest, dividends, capital gains, prizes, etc. then you have to make estimated tax payments.
2. Generally for 2012, you should pay if you expect to owe at least $1,000 in tax after withholding and credits AND you expect to have your withholding and credits to be less than 90% of your taxes. (there IS a `Safe Harbor' if your timely payments equal 100% of your 2011 taxes)
3. Typically Sole Proprietors, Partners and Shareholders in S-Corporations should pay estimated taxes.
4. To calculate the amount due, taxpayers can:
a. Take last year's tax and divide it by four, or
b. If income is not steady throughout the year (like a retailer earns a lot more in December than in February) calculate the taxes each quarter and send them in as earned. This would also be the case if a stock sale occurred late in the year.
5. The due dates are typically April 15, June 15, September 15, and January 15 of the following year.
6. The taxes can be sent in with a check or be paid electronically.
7. Penalties for underpaying and late payments are calculated on a daily basis.