Should you be paying your estimated taxes quarterly or annually? Well the question is complicated but the answer is very simple and logical. Read further…
You should pay your estimated taxes if your present income tax withholding will not cover up the following year’s liability. This is most applicable for investors, landlords and self-employed individuals. You can pay them after every three months. The reason behind paying the estimated taxes quarterly is that your current profession may not help you to collect all the tax information at the end of the year, or the returns might not be sufficient to pay the annual federal income taxes.
Here are some useful tips how you should be doing –
• Produce the most recent tax return document
• Take a look at the two crucial lines of your tax returns – your total withholdings and total tax. These would be line 62 and line 63 on the Form 1040
• By subtracting the withholdings from the total tax, you will get the annual unfunded tax liability total
• If you are paying quarterly then this total should be divided by 3, and if you paying them monthly, then the total should be divided by 12
• Estimated payments are due on every 15th of April, June, September and January
• If you expect significant increase or decrease then calculate the estimated taxes using the projected total income
• If you are self-employed then mention your self-employment tax and regular income tax
• Using the Form 1040 ES mail the form to the IRS service center
• You can setup the recurring monthly payments through EFTPS (Electronic Federal Tax Payment System)
Is your Income Taxable?
We work all year round and end up in paying heavy taxes, that’s really discouraging. You pay tax on every cent you earn that year, right? No, it isn’t, not every fraction of your income is taxable.
Let me explain you what is your taxable income and non-taxable income, which will make you smart enough when it comes to pay taxes or figure out what to do with your month’s salary. Give yourself more money for other things –
Here is the list of Non-taxable income commodities:
• The funds that you have lent and that is repaid
• Payments for your child support
• Rolled over money from 401(k) to IRA and other 401(k) account, when you change your job
• The returned money from your investments – the returns from the invested capital
• The money which is contributed to Flexible Spending Accounts and that is used for medical expenses or childcare through work
• The disability income on the benefits which is paid for after-tax dollars
• Payments that has been contributes through certain type of retirement accounts
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