TurboTax Self-Employed guides you through the annualized installment method at tax-time. So, if your income is concentrated, for example, in the fourth quarter of the year you may be able to annualize your income. The annualized method determines your estimated tax liability as your income accumulates throughout the year instead of dividing your entire year’s estimated tax liability by four as if your income was earned evenly. However, if you do not receive income evenly throughout the year, your required estimated tax payment for one or more periods may be less than the amount figured using the regular installment method. If you’re like most self-employed business owners, you may see slow months and then big boosts in others. You may also be able to avoid estimated tax penalties if you can use the annualized installment method at tax-time to reflect your fluctuating income and avoid estimated tax penalties. “You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.”.You failed to make a required payment because of a “casualty event, disaster, or other unusual circumstance and it would be inequitable to impose the penalty”, or. If you are a high-income taxpayer, with an AGI over $150,000, then the 100% is increased to 110%.įinally, if none of those are true, you can request a waiver of the penalty under two conditions: If you pay at least 90% of your tax obligation or 100% of the tax owed in the prior year (whichever is smaller), then you will not be penalized. Generally, if you owe less than $1,000, you do not have to pay quarterly estimated tax payments and will not see an estimated tax penalty. The government knows you can’t predict the future with absolute certainty, especially when you’re self-employed, so they give you some leeway. There are ways to avoid a penalty even if you underpay your obligation. If you’ve never understood how quarterly estimated tax payments work, how quarterly estimated tax penalties are calculated or determined, or how to best meet these obligations, here are some tips for you to help avoid estimated tax penalties. Employees have their taxes withheld by their employer, so they never have to think about it, but if you’re self-employed you have to pay taxes yourself. This means you may need to send quarterly estimated taxes four times a year (in April, June, September, and January) since the United States works off the principle of “pay as you go”, and self-employed don’t have taxes taken out of every paycheck. If you’re self-employed, estimated taxes are a part of your business life. It is accurate for your 2017 taxes, which you will file by the April 2018 deadline. The article below is up to date based on the latest tax laws.
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December 2022
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