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Quarterly estimated taxes might seem like a heavy burden since taxpayers have to make calculations and pay four times a year. But typically, estimated tax payments may even reduce the tax burden when it’s tax season. Instead of worrying about paying enough, taxpayers have already paid most if not the entire debt to the IRS.
This article is dedicated to calculating estimated quarterly taxes. You will learn more about estimated taxes by checking comprehensive examples.
Understanding Estimated Tax
Self-employed individuals are expected to calculate and pay their estimated taxes as they don’t have employers who would withhold from their paychecks.
The payment is called “estimated” because you have to estimate how much you will make this year. The IRS expects you to pay taxes on that amount. The calculation includes self-employment, income, and any other applicable taxes.
Who has to Make Estimated Tax Payments?
It’s mandatory to make quarterly payments if a person expects to make $1,000 or more and plans to file as a:
- sole proprietor;
- S corporation shareholder;
- self-employed taxpayer.
Businesses that plan to file as corporations and estimate that they own $500 or more for the year should also make estimated quarterly payments. In case you have any doubts, consider asking for professional help. A certified accountant can help with figuring out these nuances as well as calculating estimated payments.
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Who Shouldn’t Make Estimated Tax Payments?
Regular employees shouldn’t worry about estimated quarterly payments since that’s the job of their employers. If an individual has filled out a Form-W4, then the employer is withholding taxes from their paychecks every month.
There are other groups of people who are employed but shouldn’t pay estimated taxes:
- Taxpayers who don’t owe taxes in the previous fiscal year and don’t have to file tax returns.
- Individuals who were US citizens or residents for the entire year.
- Taxpayers whose tax year was 12 months long.
Individuals have to meet all of these above-mentioned criteria to not make estimated quarterly payments. In all other cases, self-employed individuals have to calculate and pay estimated taxes.
Estimated Taxes Deadlines
The term “quarterly payments” already hints that taxpayers have to pay once every three months, so four times. Payments are usually made on April 15, June, September, and then on January 15 of the next year (for example, in January 2021, you make payment for the year 2020).
If the 15th is a holiday or during a weekend, then the date is the closest business day. In 2022, the schedule looks as follows:
- April 18: to cover January 1 to March 31.
- June 15: to cover April 1 to May 31.
- September 15: to cover June 1 to August 31.
- January 17, 2023: to cover September 1 to December 31.
Consider setting reminders to avoid missing quarterly payments.