Estimated Tax Payments

Today TaxMama wants to talk to you about estimated tax payments. I’ve been getting several questions about that topic from a variety of sources lately.  So let’s make it easy for you. OK?

Dear Family,

First of all, do you really think it’s reasonable to ask a tax columnist to figure your estimated tax payments for you? Or even wise?

Second, be careful of the information you provide someone. As much as I appreciate the trust, please never send or provide detailed financial information to anyone, unless you have a professional relationship with them. In other words, you have hired them to provide you with financial or tax guidance.

That said, how can you figure out how much you should pay to cover your estimated tax obligation?

Here is the General Rule
You must pay estimated tax for 2010 if both of the following apply.

1.       You expect to owe at least $1,000 in tax for 2010 after subtracting your withholding and credits.

2.       You expect your withholding and credits to be less than the smaller of;

o  90% of the tax to be shown on your 2010 tax return, or

o  100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.

Estimated tax payments are due quarterly (Based on IRS quarters, not real people quarters) – on April 15, June 15, September 15, January 15. 

You will use Form 1040-ES to make the estimated tax payments. Better yet, set up an Electronic Federal Tax Payment System account and do it electronically. EFTPS accounts have no fees – www.eftps.gov .

You will find Tax Estimators  at these sites:

1040.comTurboTax.com, H&R BlockBankRate.com ,

You will find practical tips from William Perez, EA at about.com.

However, if you have wages, retirement income, Social Security, or unemployment consider adjusting your withholding to cover your taxes instead of making estimated tax payments. This will serve two purposes:

1)       You won’t have to remember to make the payments.

2)       You won’t face any late payment penalties if you missed the first 2 payments by starting to pay during the summer or fall.

And remember, you can find answers to all kinds of questions about estimated tax payments, and other tax issues, free. Where? Where else? At www.TaxMama.com.

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