When you owe estimated taxes, Uncle Sam expects a check 4 times a year and that may be you if any of the following applies to your situation.
For most of us, tax day comes just once a year on or around April 15. But for people who owe estimated taxes, Uncle Sam expects a check four times a year. Unfortunately, one of those poor quarterly taxpayers may be you if any of the following applies to your situation.
- You cashed in some serious stock market winners this year but haven’t changed your withholding.
- You or your spouse became self-employed and now owe income and self-employment taxes for your efforts.
- You finally decided to hire a nanny and pay her federal payroll tax. You can do this in quarterly payments or in one lump sum when you file your taxes in April. (But you may owe interest if you wait until April.) For more details, see our story “The Nanny Tax.”
- You have income from other sources that you forgot to consider (or had no way of knowing about) when you filled out your W-4 for 2011.
Anyone who expects his 2011 tax bill net of salary withholding to be under $1,000 or any U.S. citizen or resident whose tax bill for 2010 was zero then you may be exempted from owing estimated taxes.
The IRS rules are complex, please refer to IRS Publication 505 from the IRS Web site and contact an attorney.
Even if the estimated-tax rules apply to you, Mr. Bischoff explains there are easy ways to lessen the pain. In his article he provides more information on:
- The Fundamentals – due dates, interest rate, penalty, tax forms.
- So How Much Do I Owe? – safe harbor guidelines.
- What If I Miss a Payment?