k.mckinley@comcast.net.
Best regards
Kristine McKinley
http://www.beacon-advisor.com
Do You Need to Make Estimated Tax Payments?
The second quarter estimated tax payment is due in less
than two weeks (June 15). Do you know if you need to make
estimated tax payments?
The federal income tax system is a pay-as-you-go tax
system. That means you pay taxes as you earn income
throughout the year. If you are an employee of a company,
you pay taxes through withholding from your paycheck. If
you are self employed, you pay taxes by making estimated
tax payments.
The general rule is that you must make estimated tax
payments if you expect to owe at least $1,000 in tax for
the current tax year, after subtracting your withholding
and tax credits, AND if you expect your withholding and tax
credits to be less than the smaller of:
* 90% of the tax liability on your current year tax return,
or * 100% of the tax liability on your prior year's tax
return
Example: If your tax liability for 2006 was $1,500, but
you expect to owe $2,000 this year because your business
did better than the previous year, then the minimum you
would need to pay in to avoid underpayment penalties is the
lesser of $1,800 (90% of your current year tax liability)
or $1,500 (100% of last year's tax liability).
The easiest way to estimate your quarterly estimated tax
payments is to estimate your tax liability for the entire
year and divide that amount by four. However, if you don't
receive your income evenly throughout the year, you may use
the annualized income installment method. A worksheet and
instructions are available in IRS Publication 505, Tax
Withholding and Estimated Tax.
The due dates for estimated tax payments are:
For the period: Jan 1 - March 31 Due date: April 15
For the period: April 1 - May 31 Due date: June 15
For the period: June 1 - August 31 Due date: September 15
For the period: September 1 - December 31 Due date: January
15 the next year
If the 15th falls on a holiday or weekend day, the due date
will be the next business day.
You can pay your estimated taxes by using payment vouchers
(Form 1040-ES), or by using the Electronic Federal Tax
Payment System (https://www.eftps.com/eftps/). In
addition, if you have an overpayment from a previous year,
you can apply the overpayment to your next year's estimated
tax.
Resources:
IRS website - http://www.irs.gov/index.html
IRS Publication 505, Tax Withholding and Estimated Tax -
http://www.irs.gov/publications/p505/index.html
Form 1040-ES - http://www.irs.gov/pub/irs-pdf/f1040es.pdf
----------------------------------------------------
Kristine A. McKinley, CPA, and CFP®, offers financial and
tax planning on an hourly, fee-only basis. She specializes
in helping eBay sellers and online business owners
understand and minimize their income taxes.
=> Website - http://www.squidoo.com/ebaytaxtips/
=> Special Report 'Tax Tips for eBay Sellers'
http://beaconfinancialtips.typepad.com/ebaytaxtips/2007/02/f
ree_special_re.html
