Today TaxMama wants to talk to you about those quarterly estimated tax payments. Since that’s the most popular page being accessed this weekend, perhaps this is a good time to explain how they work and when they are due, don’t you think?
If you’re one of those really lucky people who get to make estimated tax payments each quarter, normally, your estimated payment would be due on the 15th of the month in question. But many times, the 15th falls on a weekend or holiday. Especially in January, when the Monday close to the 17th is a Federal holiday for Martin Luther King’s birthday, odds are that the 4th quarter estimated payment will due on the following Tuesday.
That’s the case this year. So, if you were rushing off to the bank or post office to take care of this installment, stop. Both the bank and post office are closed today.
But do you even need to make a payment? You do if you’re in one of the following categories of taxpayer:
You expect to owe $1,000 or more beyond any payroll withholding.
1) Your withholding or other tax credits (education, children, etc) will be less than 90% of the tax you expect to owe on your tax return.
2) Your withholding or other tax credits (education, children, etc) will be less than 100% of the tax shown on your previous year’s (12 month) tax return. If you expect to have losses from the business, don’t worry about making estimated tax payments on the business.
Estimated tax safe harbor for higher income individuals. If your adjusted gross income for 2004 was more than $150,000 ($75,000 if married filing a separate return), your withholding and estimated tax payments must be at least the smaller of 90% of your tax liability for 2005 or 110% of the tax shown on your 2004 return (provided your 2004 return covered all 12 months) to avoid an estimated tax penalty.
You’ll find more information, and links to all the forms on TaxMama.com at the Estimated Tax Payment article – http://www.taxmama.com/Articles/es.html
But one thing the article won’t tell you is – if you miss this 4th payment, and by some incredible stretch of the imagination you’re in a position to file your tax return by January 31st and pay the whole tax balance due, you can avoid the penalties for missing the 4th payment. (Not for missing all the estimated payments – just the 4th.)
Actually, there’s another way to take advantage of this aspect of the tax laws, if you think you’re going to be hit with big penalties for not paying the 4th estimate. File the tax return with approximate amounts and pay everything you expect to owe. Then amend the tax return a few months later, once you have all the correct information.
And remember, you’ll find answers to questions about tax payments and all kinds of tax issues, free. Where? Where else? At TaxMama.com