As accounting professionals with tax expertise we are here to help. With burdensome and complicated Internal Revenue Service (IRS) requirements regarding estimated tax payment for individual and small business.
Who has to Pay Estimated Federal Income Taxes?
As we’re sure you know, most employees (probably yours) have appropriate federal income taxes withheld from every paycheck and don’t need to worry about estimated tax payments. But almost all sole proprietors, partners, S corporation shareholders and LLC owners must pay estimated taxes.
When are my Estimated Tax Payments Due?
Your payments are due in four installments. For the 2019 tax year they are (were):
- April 15, 2019. Yes, this is the same day your 2018 final tax return was due. Even if you filed for an automatic extension to October 15, 2019 your 2019 estimated tax payment was still due. (Hopefully, you have already made this payment.)
- June 17, 2019. (Hopefully, you have already made this payment.)
- September 16, 2019. This deadline is coming up faster than you think!
- January 15, 2020. This gives us just two weeks to determine your 2019 estimated tax payment, but recall that this is an estimated payment, so if you can’t give us everything we need to make an exact calculation we can determine an estimated payment that will allow you to avoid any penalties.
Then comes April 15, 2020 when all the money you owe – if any – is due. We say “if any” because our goal as your tax accountants would be to make sure you have paid the correct amounts in the four estimated tax payments we calculated for you, you should pay a very small amount or even get a small refund. We actually want you refund to be small if at all, because if you overpaid you essentially loaned money to the government interest free. Also note that even if you instruct us to apply for the automatic extension to October 15, 2020 for the final return filing, any payment that is due to the IRS is due on April 15, 2020.
But it never stops, does it? April 15, 2020 is also the due date for your first estimated tax payment for 2020! Note that estimated tax payment due dates for the 2020 tax year are not officially set, but they will most certainly be April 15, 2020, June 15, 2020, September 15, 2020 and January 15, 2021.
What if I can’t Make a Payment?
What if I absolutely can’t make my quarterly estimated tax payment to the IRS on time? The good news is you won’t go to jail! The bad news is that in most cases you pay interest and penalties. Penalties vary annually but are generally around five percent and interest also varies but is actually reasonable – far less than the typical credit card rate. Also, if you miss the exact due date for an estimated tax payment you don’t have to wait until the next due date to catch up. Paying as soon as possible can help minimize you interest cost. For example, you are unable to make your September 16, 2019 payment but a huge account receivable check arrives on September 20; go ahead and make the payment and get caught up.
What you really want to avoid is finding yourself behind on your 2019 estimated tax payments on April 15, 2020 and simultaneously behind on your first 2020 estimated tax payment. Get a live person quick at IRS by doing this.
Are there ways to Avoid any Penalties?
Yes, there are several. Even if the estimated taxes paid were too low, (using 2019 as an example) if you paid the IRS 90% of what was ultimately determined to be due or if you paid the IRS and amount equal to 100% of the taxes that you owed for 2018 you are safe. Also, there are waivers for events such as casualties, disasters, or retirements. We can walk you through your options.
As a final note, any applicable state and local income taxes generally require quarterly estimated tax payments, but, since these taxes are calculated based on your federal returns, as tax accounting experts we can prepare these payments as well.
Do you have unique issues or concerns not discussed in this blog? Then please contact us by email or phone. We are here to help.