Paying Estimated Tax Payments
I work with a lot of taxpayers who get in trouble with the IRS because they do not make their estimated tax payments. Some times it is because they are real estate agents, independent contractors or otherwise self-employed and they are payed directly by customers and there are no income taxes withheld by an employer. Not paying your estimated taxes when required is a problem and can really mess up any agreements you may work out with the IRS or prevent you from working something out in the first place. But that is a post for another day.
So how do you know if you are required to pay your estimated taxes rather than waiting until April 15 to pay your taxes with your income tax return?
You must pay estimated tax for 2008 if both of the following apply.
- You expect to owe at least $1,000 in tax for 2008, after subtracting your withholding and credits.
- You expect your withholding and credits to be less than the smaller of:
- 90% of the tax to be shown on your 2008 tax return, or
- 100% of the tax shown on your 2007 tax return. Your 2007 tax return must cover all 12 months.
Note. These percentages may be different if you are a farmer, fisherman, or higher income taxpayer. See Special Rules on the next page.
For more information about estimated taxes and whether you are supposed to pay them check out this IRS web site page.
Coming next - When are estimated tax payments due and how should you pay them? The answer is probably not what you will expect.