10 Things You Should Know About Quarterly Taxes

Sending Uncle Sam and your home state a portion of your income four times a year is probably not your idea of fun, but it beats paying the penalties and interest that accrue if you miss the deadlines. You are required to file quarterly taxes if you are self-employed or if you receive income through rentals, alimony, interest, dividends, gambling winnings, investment gains, pensions or annuities and you will owe taxes.

If you fall into the previously mentioned income categories, you’ll want to be sure you have all the information you need to stay out of the penalty box. To keep you on the good side of the taxing authorities, you need to know the following 10 things about quarterly taxes.

1. Quarterly taxpayers – You qualify to pay quarterly estimated taxes if you paid more than $1,000 in taxes during the previous tax year or if you expect to owe more than $1,000 in taxes during the current tax year. Depending on your income level, you need to have in the taxing authorities hands either 100% or 110% of your total taxes for the prior year.

2. Tax percent – The self-employment tax for 2015 is 15.3 percent of your income. If you noticed that percent is twice as high as employee’s pay, it’s because employers and employees split the cost, whereas the self-employed absorb it solo. You do get an adjustment which reduces your income by ½ the amount which will reduce the amount of income tax you pay, but you have to send the entire social security/Medicare amount.

3. Amount owed – If you have your previous year’s tax return, find your total amount owed and multiply that by .90. Take that number subtract the amount that is being withheld and divide it by 4 to know the amount of your estimated quarterly payments.

4. File form – Use Form 1040-ES and put the amount of your estimated quarterly tax on the Voucher and include your payment.

5. Deadline dates – If the 15th of the deadline month falls on a weekend or federal holiday, the payment is due the next business day. The deadlines are April 15, June 15, Sept. 15, and Jan. 15 of the next year. If you itemize and need to make state estimated tax payments and are not subject to the AMT you want to make the last state payment before December 31st so that you can include it as an itemized deduction for the current year rather than waiting a full year to be able to deduct it.

6. Penalties owed – If you miss a payment you will be charged a penalty of one-half of one percent for each month, or portion of the month, that you fail to pay the taxes owed beyond the deadline. The IRS tacks on a three-percent interest, so it is in your best interest to pay on time.

7. Missed payment – If you miss a payment, file as soon as possible. You can appeal the penalties and the IRS may forgive them, but there is no guarantee.

8. Underpayment – If you underestimated what you owe, you can adjust your next payment by completing another 1040-ES worksheet to calculate the new amoun t and get back on track.

9. Overpayment – If you paid too much, don’t fret. You can apply the overage to next year’s quarterly taxes.

10. Avoid quarterlies – If you are self-employed and receive a salary or wage, you may be able to avoid the estimated tax if you file another Form W-4 increasing your withholdings. That may take you out of the quarterly tax-filing category.

Your best bet with tax filing is to double check with a professional to ensure you won’t incur any penalties. Myerson & Myerson, CPA’s is will answer your questions. Call 703-753-1040, or email info1@mandmcpas.com.