What are estimated taxes?
Estimated taxes are quarterly payments made by individuals and businesses to the IRS to cover their tax liability for the year. These payments are made based on an estimate of the taxpayer's income, deductions, and credits for the year.
Estimated taxes are typically paid by self-employed individuals, freelancers, and those who receive income that is not subject to withholding, such as rental income or investment income.
How are estimated taxes calculated?
Estimated taxes are calculated based on the taxpayer's expected income, deductions, and credits for the year. The taxpayer can use Form 1040-ES to calculate their estimated tax liability. The form includes a worksheet to help taxpayers estimate their income, deductions, and credits for the year.
The estimated tax payments are generally due on April 15, June 15, September 15, and January 15 of the following year.
What happens if I don't pay estimated taxes?
If you don't pay enough estimated taxes throughout the year, you may be subject to an underpayment penalty. The penalty is calculated based on the amount of tax you should have paid throughout the year, and the amount you actually paid.
To avoid the penalty, you must pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous year (110% if your adjusted gross income for the previous year was over $150,000).
Can I change my estimated tax payments during the year?
Yes, you can change your estimated tax payments during the year if your income or deductions change. You can use Form 1040-ES to adjust your estimated tax payments.
It's important to keep track of your income and deductions throughout the year to ensure that you are paying the correct amount of estimated taxes.
I started working for myself at 9. My first tax bill showed up at 14. I didn’t understand it, and nobody around me could really explain it. If you’ve been there, you get it. Twenty years later, after creative directing for brands in New York and buying and selling a few companies, I kept seeing the same thing: smart, talented people losing money to a system that wasn’t built for how they work. That’s why I built WorkMade. Not to make taxes “easier to understand” but to make them disappear into the background, so you can get on with your life.