Taxes are a notoriously confusing topic for many, especially when it comes to quarterly estimates. Most traditional income earners typically don’t need to think twice about taxes as employers automatically withhold taxes from each paycheck. These funds are sent to the IRS and likely your state government. As you earn money, you’re paying your taxes along the way.
But those who are self-employed, or those who have income that differs from employment wages, may need to pay quarterly taxes.
What are estimated tax payments?
If you receive income that isn’t subject to withholding, you might owe estimated taxes. This can mean:
- Earnings from a business
- Interest income
- Taxable alimony
- Gains from stock sales or other assets
Every scenario is unique, but it’s better to be over prepared than to scramble at the end of the year. You might even be forced to pay a penalty if you haven’t paid enough throughout the year.
Who is required to make these payments?
To figure out whether or not you owe quarterly estimated taxes, consider if you’ll owe less than $1,000 in taxes for the year once you’ve subtracted your federal income tax withholding from how much you’re expected to owe in taxes this year. If so, you won’t need to pay quarterly taxes. If your federal income tax withholding is at least 90 percent of the total tax you’ll owe for this tax year, you’re also in the clear. If you expect your income tax withholding to be at least 100 percent of the total tax of your previous year’s return, you won’t need to make quarterly payments.
When in doubt, it’s advisable to consult with a tax professional to check in on the status of whether or not you’re on the hook for quarterly payments. As a safe option, you should aim to cover 100 percent of your previous year’s taxes. If your gross income was over $150,000 (or $75,000 for those who are married and filing separate returns), you’ll need to pay 110 percent of last year’s taxes.
How to make estimations & 2023 due dates
Coming up with accurate estimates is key to avoiding penalties come tax season. Start by referencing your previous year’s tax return so you have reference points in terms of your income and deductions. Consider the total tax that you paid if you’re going to base your estimated payments on either 100 or 110 percent of last year’s taxes.
You’ll also need to have records of how much you’ve made this year to help you determine your estimated payments. Pull up any relevant paystubs to ensure accuracy.
The 2023 dates are April 18, June 15, September 15 and January 16 (2024). Although payments are usually made in equal installments, you don’t have to approach taxes this way.
Feeling overwhelmed? Founder’s can help
If you’re feeling overwhelmed about quarterly estimated taxes and you’re not sure where to begin, our team is here to help. Whether this is your first time making quarterly payments or you simply want a seasoned professional on your side, reach out to us today to get started.