What are Estimated Taxes and Who Needs to Pay Them?
Many taxpayers we deal with in our practice in Winchester, VA. Charles Town, WV and Martinsburg, WV encounter tax issues because they do not pay enough taxes during the year. Paying Estimated Taxes is especially important for self-employed taxpayers who own small businesses. It is important to note that anyone who is getting paid on a 1099-Misc (and not a W2) is considered an independent contractor and is self-employed. If you have ever been paid on a 1099-Misc, you probably know that there are NO taxes withheld. Even if you don’t think you are self-employed; if you get a 1099, you are self-employed in the eyes of the IRS and for tax purposes. Since no taxes are withheld, it is your responsibility to pay your Estimated Taxes on a quarterly basis.
If you do not pay your Estimated Taxes during the year, you run the risk of having a significant tax bill when you file your tax return at the end of the year. A tax bill you may not be prepared to pay. We see this all the time in our tax practice.
Self-Employed individuals file quarterly Estimated Tax Payments with Form 1040-ES. The quarterly deadlines for estimated tax payments are Apr 15, Jun 15, Sep 15, and Jan 15 (of the following year). The question we get most often is, “How much do I need to pay?” This is why you need a good bookkeeper to manage your books. You can contact the Liberty Tax office in Winchester, VA at 540-662-4432 or the Liberty Tax in Martinsburg, WV at 304-262-0030 for help with your bookkeeping. They offer a professional service with good rates for small businesses.
Often taxpayers will tell me, “I just wait until the end of the year, then pay all of my taxes or Apr 15 (or Oct 15 after filing an extension), and I have never had a problem”. They would be correct. As long as you are able to pay the entire amount of tax due (and penalties and interest if paying in Oct) you will not be bothered by the IRS. The problem arises if you are unable to pay and then end up in collections with the IRS.
In most cases, you must pay estimated taxes if both of the following apply.
1. You expect to owe at least $1,000 in tax, after subtracting withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:
a. 90% of the tax to be shown on your current year’s tax return, or b. 100% of the tax shown on your prior year’s tax return. If you earn more than $150,000 per year, it is increased to 110% of the tax shown on the prior year’s tax return.
Contact your tax advisor or bookkeeper to help you with these calculations and to keep you on track and out of IRS Collections.
At Tax Debt Resolution Services of Winchester VA, our mission is to help you eliminate your IRS issues and the stress the IRS has created in your life and help you get back to doing what you do best! We help our clients in Winchester VA, Strasburg VA, Martinsburg WV and Charles Town WV to resolve their tax debts! If you need assistance please feel free to contact me at 540-662-4432 or firstname.lastname@example.org.