Far too many people find themselves in a tough position when it comes time to pay their taxes. Estimated tax payments are a helpful tool that can help to avoid paying a large sum when filing your taxes, and can also prevent you fro
m being charged penalties that many taxpayers don’t even know exist.
Estimated payments can be made for both your federal and your state, and have different due dates and guidelines, so it is important to be informed about both.
Estimated Tax Payments to the State (California):
In most cases, if you are expecting to owe more than $500, even after your withholding from your wages, you must make estimated payments. Though, if your withholding equals 90% of your 2016 tax, or 100% of your 2015 tax, you can avoid making estimated payments. If you do not make your payments by their due dates, a penalty will be issued. They compute the penalty at the same rate as interest for the period of underpayment, which at this time would be 3%. California has quarterly due dates when a certain percent of estimated taxes owed must be paid. The following are the California Franchise Tax Board estimated payment due dates.
- 30 percent First quarter (April 18. 2016)
- 40 percent Second quarter (June 15, 2016)
- 0 percent Third quarter (September 15, 2016)
- 30 percent Fourth quarter (January 17, 2017)
Estimated Tax Payments to the IRS:
If your withholding from your wages is not sufficient to cover your tax owed, you will need to make estimated tax payments in order to avoid an estimate penalty. Usually someone who is in business for themselves will have to pay their tax this way. Estimated tax is not only used to pay income tax, but other taxes as well. For example, your estimated tax payments can be for self-employment tax and/or alternative minimum tax. The IRS has it’s own set of guidelines for when estimated payments need to be made, just as the Franchise Tax Board does for California. Generally, if you are going to owe more than $1000 in tax even after your withholding, or your withholdings are not equal 90% of your 2016 tax, or 100% of your 2015 tax, you will need to make estimated payments to the IRS to avoid penalty. For deadlines visit the IRS website.
We all know that doing your taxes can be a very stressful time for many people. Be prepared and plan for your taxes by making the necessary estimated payments. Fisherman and Farmers have separate requirements that also need to be taken into account. There are so many different factors that play into your tax owed for both the IRS and the FTB, so if you are unsure if estimated payments are necessary for you, it is always best to speak with an experienced CPA that can help you by not only telling you if you need to make estimated payments, but also calculate how much those payments need to be. If you are looking for a CPA in San Diego, visit Abbo Tax CPA.
