Some, but not all, taxpayers need to make estimated tax payments.  The IRS has a “pay as you go” system.  This means the IRS requires taxes to be paid either through withholding or estimated tax payments as you earn income, not just at the end of the year when you file a tax return.  Estimates are usually necessary when a taxpayer does not have enough withholding form their salary or retirement income.  In addition, taxpayers that receive other types of income such as interest, dividends, business income, capital gains, prizes, etc. may be required to make estimated tax payments.

The consequence of not paying estimated taxes timely and in the required amount is that you may be assessed a penalty. The IRS charges a penalty if your estimated payments are late or not in the required amount.

Who must pay:

Estimated tax payments are usually required for individuals, partners, and S corporation shareholders if they expect to owe more than $1,000 of tax when their return is filed.

Corporations must make estimated tax payments if their tax due on their tax return will be $500 or more.

When to pay:

Estimated taxes are due quarterly.  The tax year is divided into four equal payment periods.  The due dates for each quarter are April 15, June 15, September 15 and January 15.  If the 15th is on a holiday or weekend the payment due date is the next business day.  Each quarter must be paid timely in order to avoid a penalty for late payment of estimated tax.

How to calculate tax:

For individuals, estimated tax is calculated on Form 1040-ES.  The general rule is that 90% of the current year tax must be paid in or 100% of the prior year tax (110% for taxpayer’s with a higher adjusted gross income) is required to be paid in as estimated tax.  The calculation and requirements are different for farmers, fisherman and any others that earn income unevenly throughout the year.
Corporation use Form 1120-W to calculate estimated tax.

We can help you calculate your estimates and help you avoid any penalties that result from late payment or underpayment of your estimated tax. This penalty is easy to avoid so keep the money in your pocket and do not give it to the IRS.


To learn more about the Estimated Taxes, call Malia Wollerson at (318) 429-2111 or email mwollerson@hmvcpa.com.
For more information on the services available to you by Heard, McElroy
& Vestal, LLC, call our Shreveport office at (318) 429-1525,  our
Monroe office at (318) 388-3108 or visit www.hmvcpa.com.













Author:
Malia Wollerson, Tax Department

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