submitted by Martin H. Abo, CPA/ABV/CVA/CFF, Abo and Company, LLC
In general, estimated taxes must be paid on income which is not subject to withholding, including taxable income from self-employment, interest, dividends, alimony, gambling winnings, unemployment compensation, social security, rent, and gains from the sale of assets.
You also may have to pay estimates if the amount of tax being withheld from your salary, Social Security, pension or other income is not enough. Estimated tax is used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your personal tax return.
If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty.
You may be charged a penalty even if you are due a refund when you file your return. Here are tips even the IRS agrees are worth considering about estimated taxes and how to pay them:
- As a general rule, you must pay estimated taxes if 1) You expect to owe at least $1,000 in tax after subtracting your tax withholding (if you have any) and credits, and 2) You expect your withholding and credits to be less than the smaller of 90% of your 2013 taxes or 100% of the tax on your 2012 return.
- For Sole Proprietors, LLC Members, Partners and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.
- To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions and credits for the year. Consider changes in your situation and recent tax law changes.
- The year is divided into four payment periods, or due dates, for estimated tax purposes. Those dates generally are April 15th, June 15th (17th in 2013), September 15th (16th in 2013) and January 15th.
- The 0.9% new Additional Medicare Tax applies to Medicare wages and self-employment income over threshold amounts. You may need to include this amount when figuring your estimated tax.