Make sure to pay your estimated taxes and avoid penalties that will affect your budget.
According to the Internal Revenue Service (IRS) press release from March 22th, 2019, Federal TaxPayers could face penalties for under payments of their estimations.
This penalty could be applied if less than 80% of the tax debt have been paid, either through quarterly estimated payments, income tax withholdings or a combination of both during the 2018 calendar year.
This new level was established after 90% of the required payment was reduced to 85% for tax obligations on January 16 of the current year.
When discussing estimated tax payments, a legal requirement for many Taxpayers, let’s examine how they work for both individuals and businesses.
Individuals and organizations are responsible for paying
Most corporations must pay estimated taxes if they have projected a tax liability of at least $500 on their annual tax return.
When dealing with other entities, including individual owners, companies, shareholders of S-Corporations and individuals, estimated payments are necessary if there is a projection of a tax liability of at least $1000 when they make their annual return.
Estimated payments obligations
As income is generated, taxes must be paid either through the estimated tax or through withholdings and payments to the IRS.
Estimated taxes may be necessary for workers who have not had enough withholdings of a variety of income. It can come from salaries or pension payments, interest or dividends earned, alimony, capital gains or lottery draws.
In addition, self-employed individuals must pay estimated taxes, as well as self-employment taxes and earnings.
If there are not enough taxes paid by estimation or withholding, or if they are paid late, there could be a penalty for this. This penalty is imposed even if there is a refund pending for the taxpayer when making his tax return.
When are estimated taxes not required?
For those who receive compensation in the form of wages or salaries, employers can work with their employees to withhold the appropriate amount of taxes, thus reducing the need to make estimated taxes.
Other scenarios that may provide an exemption from paying estimated taxes are when taxes were not due during the previous fiscal year (or it was not legally required to file a tax return).
Make your Estimated taxes
Required four times a year, the taxes estimated can be paid with a weekly, biweekly or monthly frequency. No matter the frequency of payments, as long as the estimated taxes are paid on the agreed date.
Although there are different requirements for workers in certain industries, such as fishermen and farmers, for those taxpayers who do not pay their debt, either by estimation or withholding, the IRS can make a penalty. However, if the taxpayer meets one of the following criteria – the smallest amount that occurs – they can expect to avoid a penalty:
- The Taxpayer has an obligation of less than $ 1,000 (after taking into account the credits and withholdings).
- You have paid 90% of your tax obligations for the fiscal year.
- You have paid the same amount of taxes owed as the previous year.
However, with the recent IRS press release, by 2018 at least, the 80% threshold has been established. Other ways in which taxpayers can obtain an amnesty for this penalty is that the person dies, retires at the age of 62, or develops a disability during the fiscal year in which the estimated tax is owed.
The underestimation of the payment must be caused by “reasonable causes” and not by tax evasion.
Determining and paying estimated taxes is not a requirement for all taxpayers, but it is a legal requirement for millions of American citizens and all those who live and work in the United States.
We help you do your taxes
It is important that when dealing with taxes you have the help of a CPA or a tax preparation specialist to advise you with the payment schedule, as well as with the possible amounts each year.
Also, when calculating the amount of quarterly estimated taxes, make sure they are based on earnings; that is, income minus expenses.
At GlobalTax, you will always find the help you need to get ahead and carry out the hard task of planning and calculating your taxes.