19.2 – Estimated Tax Payments
Some investors, small business owners, and others are required to pay estimated taxes every quarter.
If you know you’ll owe greater than $1,000 when you file your tax return, you should make quarterly tax payments to the IRS.
You may need to make estimated payments at the state level, too, depending on your state. If you’re not sure, reference your state’s Department of Revenue website for more information.
If you had no tax liability in the last year, you do not have to make estimated tax payments. Yay!
What happens if I don’t pay quarterly taxes?
If you don’t pay or pay late, the penalty is .5% per month from the time your taxes were due. This penalty is added to the taxes you owe. Which isn’t too bad.
There are two safe-harbors for the estimated tax penalty:
- If you have paid 110% of the prior year’s taxes
- 90% of your current year’s taxes
- List Item #3
Withholding and estimated tax payments both count towards satisfying the safe-harbors.
What are the deadlines for quarterly tax payments?
Quarter 1 payment: April 15 - 25% of federal tax
Quarter 2 payment: June 15 - 25% of federal tax
Quarter 3 payment: September 15 - 25% of federal tax
Quarter 4 payment: January 15 - 25% of federal tax
If you are required to make estimated tax payments to the state of California (why are you living there seriously!?!), the deadlines are:
Quarter 1 payment: April 15- 30% of state tax
Quarter 2 payment: June 15 - 40% of state tax
Quarter 3 payment: September 15 - 0% of state tax (no taxes due in Q3)
Quarter 4 payment: January 15 - 30% of state tax
For more information on California tax deadline extensions, visit the Franchise Tax Board’s site here.
How do I make quarterly tax payments?
To make quarterly tax payments, complete Form 1040-ES (Estimated Tax for Individuals) and mail it to the IRS with your payment by check. Alternatively, you can make your quarterly estimated tax payments online through the IRS payment portal.
Most states also offer the ability to accept payments online. Please check your state’s Department of Revenue website for more information.
Paying your estimated quarterly taxes is like putting down deposits towards your year-end bill. Please note that paying quarterly taxes does not mean filing a tax return at this time.
If you miss a payment or pay late, don’t worry — it’s not the end of the world!
Penalties are relatively small. You can try to pay more next quarter, or plan to make the entire payment in full at tax time. You can also increase your withholding on wages to make up the difference.
The above is a general guide on when to pay estimated payments but as always please consult your CPA.
If you need one email Lane@SimplePassiveCashflow.com for a referral.
