An Introduction to Estimated Quarterly Taxes - PowerPoint PPT Presentation

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An Introduction to Estimated Quarterly Taxes

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The majority of Americans think about paying taxes only when tax season rolls around—sometime between January 1 and that year’s filing deadline. – PowerPoint PPT presentation

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Title: An Introduction to Estimated Quarterly Taxes


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An Introduction to Estimated Quarterly Taxes
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  • The majority of Americans think about paying
    taxes only when tax season rolls aroundsometime
    between January 1 and that years filing
    deadline.
  • That works for salaried or hourly employees if
    their companies automatically take out taxes
    every pay period, but what about the rest of us?
  • Many Americans find themselves in a very
    different tax situation. Depending on your
    income, the IRS may require you to estimate and
    pay taxes every quarter.
  • We put together this short guide to help you
    figure out whether or not you must pay quarterly
    taxes and how you can avoid penalties.

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  • Who is required to make estimated quarterly tax
    payments?
  • We always start by asking our clients these three
    questions
  • 1.Do you work for yourself?
  • 2.Are you the sole proprietor of or a partner in
    a business?
  • 3.Do you earn income from any investments?
  • If your answer is yes to any of those question,
    then the IRS may require you to pay estimated
    taxes every quarter. Heres a good rule of thumb

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  • If you expect to owe 1,000 or more in taxes
    when you file your return, then the IRS requires
    you to pay quarterly. End of story.
  • Of course, most people receive income via W2
    employment, which means that their employers set
    aside social security, medicare, and Federal
    income taxes for them.
  • But as soon as you become your own bosswhether
    you are an independent contractor or you own a
    companythen you are responsible for calculating
    self-employment taxes for yourself.

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  • (If youre new to self-employment, read this post
    about self-employment income.)
  • The IRS provides a handy calculator to help you
    estimate the taxes you will owenamely, more than
    1,000 in taxes. Though it is designed to
    determine whether you should submit a new W4, the
    calculator is still useful for other situations.
  • When will you pay penalties?
  • Three situations result in penalties being levied
    against you for failure to make your quarterly
    payments.

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  • 1.The first, and most common, situation you can
    call ignorance. For example, recent college
    grads who are self-employed may not know that the
    IRS requires them to pay taxes quarterly. This
    situation occurs when you receive self-employment
    or investment income and dont accurately
    estimate the quarterly amount.
  • 2.The second situation is underpayment. Lets
    say you dutifully made your quarterly payments,
    but you underestimated your tax liability and
    paid too little. Unfortunately, even if you were
    trying to do the right thing, the IRS will still
    penalize you for underpayment.

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  • 3.The third situation is lateness. Being even
    one day late in making your quarterly payment
    usually results in penalties.
  • How do you estimate your quarterly payments?
  • Unless you anticipate a sharp increase or
    decrease in income, the IRS recommends that you
    use your previous tax year to estimate the
    current tax years quarterly payments. With this
    model you divide your total tax burden by four.
    You then pay one-fourth each quarter.
  • You can also recalculate your estimate each
    quarter with the IRS 1040-ES form.

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  • Again, remember that it might be better to
    overpay and get money back from the IRS than to
    underpay and face the penalty plus any interest
    on the underpayment.
  • When and how should you make quarterly payments?
  • You must postmark your quarterly payments by the
    following dates

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For the period Due date
Jan. 1 March 31 April 18
April 1 May 31 June 15
June 1 Aug. 31 Sept. 15
Sept. 1 Dec. 31 Jan. 17, next year
These are 2016 dates, they will change every year, always make sure to check the dates each year.
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  • Note These are 2016 dates, and the dates can
    change from year to year based on holidays or
    weekends.
  • If you mail your payments, the IRS considers the
    postmark date as the date of payment.
  • Keep an eye on those due dates because, as
    already mentioned, you will be charged a penalty
    if you are even a day late with your payment.
  • You can also pay online or over the phone with a
    card assuming that youre willing to pay the
    convenience fee. Or you can authorize the IRS to
    use an

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  • electronic funds transfer and automatically
    deduct your payment from your account.
  • Two benefits of online payments is that they
    decrease the likelihood of missing a payment and
    give you instant confirmation of your payment.
  • Should you hire a tax professional?
  • Taxes can be confusing for anyone. They can be
    even more confusing when you are having to
    estimate quarterly taxes.

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  • One big benefit of hiring a tax professional is
    getting a CPA to guide you through the process.
    Not only can we help you avoid paying extra
    penalties, but we can also give you the peace of
    mind that the pros are taking care of everything
    for you.
  • Many of our clients believe that the extra cost
    of professional accounting translates into
    savings when they avoid penalties and thereby
    decrease their overall tax burden.
  • If we can help you in any way, dont hesitate to
    give Culpepper CPA a call at (865) 691-8509.

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  • Culpepper CPA in Knoxville TN is a full-service
    tax, accounting business advisory firm. We help
    our clients to make confident, tax-savvy
    decisions. Our CPAs began their careers in the
    fast-paced culture of global and national firms.
    We now believe in personalized advice and custom
    accounting solutions. If you are looking for
    Knoxville CPA or bookkeping services or payroll
    services or accounting firms in Knoxville TN,
    contact us today.
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