Estimated Taxes: Important Series for the Self-Employed & Those With Alternative Income Part 2

For this 3 part series we will be covering different facets of estimated tax.  You’ll learn the basics, how to avoid underpayment of estimated taxes and some new strategies to replace the traditional monthly payments. 

HOW TO AVOID UNDERPAYMENT OF ESTIMATED TAX PENALTIES

Every year, taxpayers and tax professionals alike engage in the familiar rhythms of gathering, reconciling, and reporting their income, deductions, payments, and credits. However, these rhythms are distinctly different for W-2 employees versus self-employed taxpayers and those with other income not subject to withholding like interest income, dividends, capital gains, or IRA distributions. 

If you are a W-2 employee, your employer takes care of your tax compliance by withholding and remitting federal, state, local, Social Security, and Medicare taxes from your salary. Additional tax withholdings may come from pensions, unemployment compensation, gambling winnings, or other income. If you are self-employed or have other income not subject to withholding, you will need to prepay your taxes by making estimated tax payments. 

The traditional schedule for estimated tax payments is quarterly (due April 15, June 15, September 15, and January 15 of the following year), but not every taxpayer will find it easy to comply with this preset schedule. Those with specific budget and cash flow needs will want to consult a Certified Tax Planner about your options to ensure you remain tax compliant. Next week we’ll cover a few tips to help you to strategically plan your estimated tax payments.

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