As the economy slowly gets back on its feet there are a few things to think about when you start making more money. Believe it or not making an estimated tax payment may be necessary if you want to avoid paying penalties.
Who must generally pay estimated tax?
- If you are filing as a sole proprietor, partner, S Corp. shareholder, and/or self-employed individual if you expect to owe tax of $1,000 or more.
- If filing as a corporation and you expect to pay tax of $500 or more when you file.
If an underpayment of estimated tax is calculated you could be subject to penalties and ultimately footing more cash when you file your taxes. Generally, most taxpayers can avoid this penalty if you owe less than $1,000 in tax after subtracting withholdings and credits, or if you pay at least 90% of the tax for the current year, or 100% of the tax shown on the return from the prior year, whichever is smaller.
If estimated taxes are paid it will also make the tax burden much easier at the time you file your taxes. To avoid these penalties and have a more enjoyable time filing your taxes consult with a tax professional and consider making some estimated tax payments.