Whether you’re an independent contractor or a small business owner, you’ll want to stay up-to-date on current tax laws and IRS regulations. If you expect your income in the current year to be the same or higher than last year, this is usually the easiest and safest strategy for figuring out your estimated tax. Just be ready to make up any shortfall in your taxes for the year when you file your return.
How to Calculate and Make Estimated Tax Payments
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Rely on a service like Keeper
Deciding how much you should pay is complicated because there’s no hard and fast rule for what you’ll owe. It depends on your tax bracket and other deductions and credits for which you might be eligible. The information accounting services for startups herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results.
Choose your tax filing status
- This is the only payment option that bundles federal and state payments together.
- This content has been reviewed by an Enrolled Agent (EA) with the IRS — the highest credential awarded by the agency.
- If your income fluctuates from month to month, it might make more sense to transfer a portion of each payment you collect into savings.
- As a result, some taxpayers could have paid too little tax during the year if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments.
- Tax laws and regulations are complex and subject to change, which can materially impact investment results.
These vary on a case-by-case basis but can be determined using Form 2210, or “underpayment of estimated tax by individuals, estates, and trusts.” Now that you have your total yearly expected tax liability, simply divide by four to determine your quarterly payment amounts. For individuals with income sources subject to seasonality or other fluctuations throughout the year, you can change these payments individually to better match busy and slow periods. You have special criteria to meet, but you may end up paying less in estimated taxes.
- The editorial team works to provide accurate and up-to-date information, but details can change and mistakes could happen.
- Keep in mind that you may also need to pay quarterly taxes to your state and city, depending on where you live.
- To learn more about who’s eligible to request a penalty waiver, and how to do so, check out Keeper’s in-depth guide to navigating missed quarterly tax payments.
- The higher your total income (including employment) is for the year, the more tax you can expect to owe on a capital gain.
Be ready for next year: IRS Tax Withholding Estimator helps ensure withholdings are correct for 2024
If you miss an estimated quarterly tax payment, you will likely receive a penalty from the IRS. If you expect your income this year to be less than last year and you don’t want to pay more taxes than you think you will owe at year end, you can choose to pay 90 percent of your current year tax bill. If the total of your estimated payments and withholding add up to less than 90 percent of what you owe, you may face an underpayment penalty. So you may want to avoid cutting your payments too close to the 90 percent mark to give yourself a safety net. From flexible work hours to not reporting to a boss, being self-employed comes with a lot of perks. However, with the freedom of working for yourself also comes responsibilities such as paying quarterly taxes.
If you are in business for yourself, you generally need to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax. Investors who receive large dividend payments might also be required to pay quarterly taxes on those earnings, if they meet the $1,000 threshold and other requirements. Likewise, if you had significant lottery or other prize winnings, you may also be subject to paying estimated quarterly taxes.
