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Advance tax payments are payments of taxes made before they are due. Although federal income tax returns are normally due every April 15, the Internal Revenue Service requires that you make advance estimated tax payments at least quarterly. If you are an employee, advance taxes are automatically withheld from each paycheck. However, if you have income from sources that are not subject to withholding, you will have to pay advance taxes yourself, based on your best estimates.
Estimate your gross income for the current year from all taxable sources. If you are married filing jointly, base your estimate on the joint income of you and your spouse. Estimate your yearly income from sources that are subject to withholding. Add to that sum taxable income from sources not subject to withholding, such as self-employment, interest, dividends, alimony, rents, capital gains, prizes and awards. Do not include income that is tax-exempt.Step 2
Estimate your exemptions, income adjustments and tax deductions for the year. Use your tax return from the previous year as a guide. Subtract the exemptions, adjustments and deductions from your estimated gross income to arrive at estimated taxable income. Figure your estimated total income tax liability for the year, including any self-employment tax and penalty taxes, using either IRS worksheets or IRS tax tables. Subtract from the total income tax liability any tax credits you are entitled to take and your estimated tax withholding for the year to arrive at your net tax liability. You must make estimated advance tax payments if your net tax liability after credits and withholding exceeds 10 percent of your total tax liability and is greater than $1,000.Step 3
Divide your net tax liability by 4 to arrive at your quarterly estimated advance tax payment. Quarterly payments are due on April 15, June 15, Sept. 15 and Jan. 15 of the following year. If you experience a substantial change in income during the year, you may have to refigure your estimated tax payments.Step 4
Pay your advance estimated tax. You can send a check or money order with a Form 1040ES payment voucher that you can download and print out at the IRS.gov website. You can also pay by a direct electronic transfer from your bank account through the Electronic Federal Tax Payment System. You can also pay with a credit or debit card over the phone or Internet.
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