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What You Need to Know About Your Quarterly Estimated Tax Payments

What You Need to Know About Your Quarterly Estimated Tax Payments

The deadline for filing and paying your quarterly estimated tax payment was September 15. If you missed this date, make sure to send your estimated tax payment to the IRS as soon as possible to avoid excessive penalties.

September 15 was the deadline for the third payment of the four quarterly tax payments you may be required to send to the IRS. If you missed the deadline, it’s not too late to become compliant with your liabilities. Calculating estimated tax payments can be confusing, but it’s no reason to default on your reporting obligations. Here is some information you need about calculating your quarterly estimated tax payments on Form 1040-ES.

The primary information you need is your annual AGI (Adjusted Gross Income). This is calculated by adding up your total income for the year and factoring in losses and any adjustments which may be available to you.

In order to calculate your AGI for the year, you must first add up your earnings. This includes salary from which taxes are withheld, self-employment income that may or may not be subject to withholdings, and any other income you receive such as investment income.

Next, figure out your deductions. You can choose to either itemize your deductions on Schedule A or take the standard deduction offered to you by the IRS. For 2014, the standard deduction amounts are as follows:

  • $6,200 for taxpayers filing a tax return as Single or Married Filing Separately,
  • $9,100 for taxpayers filing a tax return as Head of Household,
  • $12,400 for taxpayers filing a tax return as Married Filing Jointly.

If you qualify for any credits such as the American Opportunity Educational Credit, the EITC (Earned Income Tax Credit), or the Child Tax Credit; make sure to consider these credits when calculating your AGI.

The type and/or amount of the income you receive will impact any additional taxes for which you are responsible. It’s important to consider all taxes that may apply to you as an individual taxpayer.

If you are self-employed, it’s important to remember that you will be required to pay a self-employment tax. Your high income may also require you to pay the Medicare surcharge tax or the NIIT (Net Investment Income Tax).

If minimal changes have occurred in your earnings from the previous year to the current year, take a look at your total tax liability from the previous year and use this as a basis for determining your estimated tax liability.

For taxpayers who are earning close to the same income as was earned in 2013, this is a simple way of calculating this year’s tax liability. This amount would be on line 61 of Form 1040 from 2013. Divide your total year’s tax liability by four to determine the amount you need to send each quarter. This is an excellent way to ensure that you remain in good standing with the IRS and avoid underpaying your quarterly estimated taxes.

If your income was and is over $150K ($75 for single taxpayers or married couples filing separate returns) and you want to use this easy calculation method, make sure to send 110% of your previous year’s tax liability.

If you need help calculating your quarterly estimated tax payments, get in touch with an expert on US tax preparation or refer to the Form 1040-ES Package provided by the IRS.

Ines Zemelman, EA
Founder of TFX