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Paying Quarterly Estimated Taxes

Posted By Jim On 10/16/2006 @ 7:28 am In Business,Government,Taxes | 14 Comments

If you’re an independent contractor or own your own business, paying quarterly estimated taxes is no big deal and something you’ve grown accustomed to. For me, I’ve always worked for The Man (different Man’s, but always for The Man) and so The Man has taken care of this for me, withholding a little more than was necessary for me to cover my tax obligations. Thanks to the popularity of this blog I may have to start paying quarterly estimated taxes depending on how the numbers work out.

Usually, you can get away with not dealing with quarterly estimated taxes if the correct amount is withheld from your regular paycheck. In past years the income from this blog was small enough that the withholding, plus my deductions, still resulted in a small refund. However this year the income increased significantly and surprisingly so I didn’t even think to have payroll over-withhold this year in response.

When Do I Have To Start Paying? (and How Much?)

You don’t have to do anything until you expect to file a return in which you owe more than $1,000 (if it’s under $1,000 then the IRS will give you a pass on it). When that happens, if your adjusted gross income last year was under $150k then you can pay 90% of this year’s tax liability or 100% of your income tax liability from last year.

I make $100k and owed $16k last year in taxes, $14k of which was withheld from my taxes and thus “paid” before my return was due – leaving me a payment of $2k in April. This year I have two options: a) calculated what I think I owe this year and make sure the amount withheld from my paycheck and what I send in quarterly estimated taxes is over 90% of that guess, or, b) I make sure I pay at least $16k in taxes this year (because that’s what I paid last year).

The rules differ if you make over $150k in that Choice B (Paying 100% of last year’s taxes) goes to paying 110% of last year’s taxes. Form 1040-ES: Estimated Tax for Individuals [3] is a helpful resource for first time estimated tax payers.

How Do I Pay?

You will use Form 1040-ES, referenced above, as it also contains the vouchers you must append to your payment. I don’t understand why the dates due are Jan 15th (of the next year), Sept. 15th, June 15th, and April 15th. If the April 15th applies to the 1st Quarter (Jan 1 – March 31), then June 15th is one month short of the 2nd Quarter (April 1 – June 30) right? The payments should be April 15th, July 15th, October 15th and January 15th (of the next year)… did the IRS mess up or did I miss something? When you pay, make out the check to the United States Treasury and include your SSN or EIN.

I haven’t actually paid estimated taxes yet so if anyone has any advice on the matter I would greatly appreciate it. Thanks!


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[3] Form 1040-ES: Estimated Tax for Individuals: http://www.irs.gov/pub/irs-pdf/f1040es.pdf

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