The Internal Revenue Service (IRS) has reminded taxpayers who pay estimated taxes that the deadline to submit their fourth quarter payment is January 17, 2023.
Generally, estimated taxes apply to any kind of taxable income that might not typically have taxes deducted from employees’ paychecks by their employers. Included in this are wages earned, dividends, rental income, interest income, and capital gains. The IRS has advised that by paying withholding tax, estimated tax payments, or a combination of the two can help taxpayers avoid getting a surprise tax bill at tax time and the often-applied penalty.
Who Needs to Make Estimated Taxes Payments?
Estimated taxes apply to individuals who are self-employed or receive income from independent contractors that are not subject to tax withholding. Such individuals are required to pay their taxes to the IRS on a quarterly basis. More specifically, taxpayers are subject to estimated tax payments if they expect to owe at least $1,000 in taxes for 2022 after subtracting their withholding and tax credits.
Additionally, individuals who owed money when they filed their tax return for the current year frequently find themselves in the same circumstance when they file for the following year.
Typically, taxpayers in this scenario include those who previously itemized but are currently taking the standard deduction, households with two wage earners, workers with non-wage income like dividends, those with complicated tax situations, and/or those who neglected to increase their tax withholding.
You can avoid paying estimated taxes in one of two ways: by choosing an S corporation status if you’re a Limited Liability Company (LLC), which allows you to take a salary from the company from which withholding can be made; or by having a working spouse who agrees to increase his or her wage withholding to cover your obligation provided you file a joint return.
What’s the easiest way to pay estimated taxes?
To calculate your estimated tax, use Form 1040-ES. Making an electronic estimated tax payment using IRS Direct Pay is the quickest and simplest method. Taxpayers have the option to pay their taxes through their IRS Online Account as well.
There, they can view their payment history, any recently due or unpaid balances, and other helpful tax data, also known as the Electronic Filing Tax Payment System (EFTPS) is another great option. There is no fee for these services provided by the IRS. Additionally, using these or other electronic payment options guarantees prompt crediting of a payment.
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