If you’re self-employed or receive income that isn’t subject to withholding, you may need to pay estimated taxes to the IRS. Estimated taxes are payments made throughout the year to cover your tax liability, rather than waiting until the end of the year to pay in one lump sum. But how do you know if you need to pay estimated taxes?
The general rule is to make estimated tax payments if you expect to owe $1,000 or more in taxes for the year after subtracting your withholding and refundable credits. For example, if you’re self-employed and expect to owe more than $1,000 in self-employment tax, you should make estimated tax payments.
Here Are Some Common Situations That May Require You To Pay Estimated Taxes:
- Self-employment income – If you’re self-employed and expect to owe $1,000 or more in taxes, you should make estimated tax payments.
- Rental income – If you receive rental income and don’t have enough taxes withheld from your other income, you may need to make estimated tax payments.
- Investment income – If you have significant investment income that isn’t subject to withholding, you may need to make estimated tax payments.
- Other income – If you have income from other sources that isn’t subject to withholding, such as alimony or gambling winnings, you may need to make estimated tax payments.
Remember, staying on top of estimated tax payments is important to avoid penalties and interest. If you’re unsure whether you need to make estimated tax payments, consult a tax professional.
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Contact us to schedule a consultation and learn how we can help you save time and money on your taxes this year.