Did you know your taxes are due on January 17th? Yes, you heard me right. You have less than a month to get your taxes together. Okay, just kidding the laws are still the same and your 2016 taxes are due April 18th, 2017. BUT if you received any untaxed dollars during the fourth quarter of 2016 then I’m not kidding at all. You have to pay Uncle Same your fourth quarter estimated taxes. Let me explain.
Estimating your taxes for the quarter is just like when your employer pays you weekly, biweekly, monthly, etc. You’ll see subtracted from your gross pay is your health care costs, retirement plan payments and you guessed it, your taxes. You pay your taxes as you earn. You’ll find out if you’ve paid too little or too much when you file your taxes in the next year. Although this method is called withholding the same concept applies for your quarterly estimated taxes.
Now, you’re probably thinking in what situations would I pay estimated taxes. Well, there’s plenty. Let’s say you won the lottery for $15 million! You spent it on a new home, new car, invested a few dollars and then took me on a cruise to the Bahamas. Remember that trip? It was so much fun and we ate the best foods… Before we went on our trip you made sure to set aside how much of your new riches you needed to pay in taxes. Besides paying estimated taxes for lottery winnings, you may also have to pay if you’ve received income from self-employment, alimony, interest and any prizes like that car we won at the Oprah show.
Don’t be a rebel and try to pay it all at once now. The IRS wants their payments on a schedule. Each quarter is due on the 15th or next business day of January, April, June and September. You should aim to make equal payments in each quarter as well. If you don’t there could penalties and we do not want that! If you underestimate the amount owed you could be penalized as well.
How do you estimate how much you’ll owe in taxes? I knew you were going to ask so I got you. Most will simply use a form 1040-ES and their prior year’s taxes as a guide. Here’s the thing though. Let’s not pretend like the documents are simple and easy to use plus I want you to only worry about bringing in the income. I’ll take care of the form for you and come up with a plan to calculate and pay your taxes on time. Book an appointment on my calendar now before slots fill up and we’ll work together.
Speaking of how to pay your quarterly estimated taxes, it’s not hard to do at all. You can pay over the phone, by mail or electronically with the EFTPS. You can make one lump sum payment like a baller or break it up into weekly or biweekly payments. If you decide to do the latter just make sure that your calculations are correct and you’ll pay the appropriate amount every quarter. Better yet just come see me!
The biggest thing to remember is if you are receiving any form of income that is not being taxed before receipt then you must pay taxes on this income quarterly. Also, if you expect your total taxes due to be $1,000 or more then you need to estimate your taxes and pay as you earn. Last, don’t fall into the trap of spending all of the income received before paying the tax. Uncle Sam doesn’t care if you’re suddenly broke and can’t pay.
Business owners, independent contractors, those that live off interest and new lottery winners, its time to book your appointments with me for the New Year. I have time to work with you before the fourth quarter estimated taxes are due and the height of tax season. Get in where you fit in! Let’s make this the simplest thing you’ll do to start off 2017!