April 15 has passed. You are breathing a sigh of relief because you filed your 2013 federal tax return without the IRS’ tax help on time, you are confident that your tax payment was correct, and you are still financially secure despite paying the IRS a lot of money.
You are particularly satisfied because you became self-employed for the first time in your life in 2012 and you didn’t pay any withholding tax during the year. Consequently, you feared large late-payment penalties as you began preparing your tax return a few weeks ago.
Unfortunately, relaxing is a big mistake. Paying the IRS once a year might seem preferable to paying the IRS four times per year, but you should begin planning your 2014 tax return as soon as possible. In fact, the deadline for your first quarterly payment for your 2014 return was April 15, 2013.
Besides, your late-payment penalty might be relatively small because you just didn’t earn that much money in your first year of self-employment. Aren’t you hoping to do much better this year now that you’re an experienced self-employed entrepreneur?
This year, the IRS’ tax help can help you reduce your tax bill. The IRS brochure “Six Tips on Making Estimated Tax Payments” is one resource. Consulting a company that provides reputable tax advice such as Global Tax Services can also be very beneficial.
The most important thing to know about estimated tax payments are the deadlines. Your payments for your 2014 tax return are due on April 15, 2013; June 17, 2013; Sept. 16, 2013; and Jan. 15, 2014. If your income is steady throughout the year, you should pay a tax based on your Jan. 1 through March 31 earnings by April 15, a tax based on your second-quarter earnings by June 17, a tax based on your third-quarter earnings by Sept. 16, and a tax based on your fourth-quarter earnings by next Jan. 15.
All of these payments should be made with Form 1040-ES -- Estimated Tax for Individuals. The IRS’ tax help includes a form with instructions that help you calculate your estimated tax. Paying late and/or underestimating your tax can result in financial penalties.
If you project that your self-employment income will be uneven during the year, you should consider making unequal payments. In fact, Form 1040 - ES says “you may be able to lower or eliminate the amount of your required estimated tax payment for one or more periods by using the annualized income installment method. See chapter 2 of Pub. 505 for details.”
If you expect to make so little income that your bill on April 14, 2014, will be under $1,000, you won’t have to pay any estimated taxes at all, but you really don’t want that to happen, do you?
The IRS also advises you to factor in your deductions when you calculate your estimated tax payments. You’re allowed the same deductions on your four estimated tax forms that you’re allowed on your annual return, but figuring out your four estimates can be trickier if your deductions change during the year. For example, getting married or having a child can change your estimates.
The IRS’ tax help services also include allowing you to pay your tax bill via phone or online. You can also pay by check, credit card, debit card and money order.
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