Stephen Wallick July 18, 2018 No Comments

Beware of IRS Penalties

How does the IRS expect you to pay off your taxes if they keep adding penalties?

I don’t know what the IRS thinks, but I do know that they ruin people’s lives every day with these ridiculous penalties.

IRS penalties are supposed to deter people from messing up their tax obligations. Instead, they bury you so far that it seems impossible to dig your way out.

What Do They Expect You to Do With Federal Tax Liens on Your Credit Report?

How can you possibly get a loan to pay them off, when your banker won’t even talk to you?

Federal tax liens prevent you from being able to borrow any money for a car or home. You can’t even borrow money to pay the IRS!

Taxpayers with IRS Problems often have to shop at Buy Here, Pay Here car lots because these car dealers don’t care if you have a Federal Tax Lien. This is because they charge so much for the cars and usually have very high interest rates. Cars are expensive enough without having to pay 18% to 21% interest on a used car loan, but with a Federal Tax Lien, you don’t have a choice.

The banks have become tough on opening new bank accounts. Anyone with a Federal Tax Lien is usually prevented from even having a checking or savings account. This makes it hard to cash paychecks and hard to pay their monthly bills.

Lacking a bank account often means troubled taxpayers have to pay more and use money orders or certified checks just to pay their rent or utility bills.

The IRS can ruin people’s lives and the time to act is nowConsult an experienced Enrolled Agent for assistance with working out a plan to avoid/work on resolving the IRS penalties you’re dealt with.

Stephen Wallick July 11, 2018 No Comments

Payroll Taxes and the IRS

Many small businesses get in cash flow problems for all kinds of reasons. How they handle these problems, especially when payroll taxes are involved, usually determines if they stay in business or not.

The IRS takes an extremely strong position on payroll tax violations.

If the IRS detects pyramiding, they would rather close the business and sell off all the assets instead of trying to work out a deal with the business. Pyramiding is when a business owes past payroll taxes and continues to create new unpaid liabilities.

The worst thing about payroll taxes is that the IRS has the ability to collect business payroll taxes from anyone they believe was responsible for not paying the taxes. For example, the business owner or any check signer on the business bank account might be singled out for collection activity.

IRS will try everything to get these payroll taxes.

Usually a visit to your home or work is in order to start the collection procedures. Then all of the weapons in their arsenal can be used (Liens, Levies, or Seizure) until the taxpayer has agreed to some type of repayment.

Once the IRS determines that the business may not be able to pay the payroll taxes, they will turn their sights on the individuals they think are responsible.

. . . Look Out!

It is important to pay the payroll taxes you owe to the IRS as non-payment can negatively impact your life. Consult an experienced Enrolled Agent for assistance with working out a plan to resolve your payroll tax issues.

Stephen Wallick July 4, 2018 No Comments

The Ultimate Guide to Understand Levies and Garnishments

Often, taxpayers fall behind on their taxes owed to the IRS. Once your debt reaches a certain point, the IRS may file a tax levy against you. A levy or garnishment is a collection measure used by the IRS to collect back taxes owed. Through these collection methods, your assets may be seized, your bank account may be frozen and the IRS may garnish your wages to recoup the outstanding taxes due.

Here’s the ultimate guide to understand levies and garnishments:

Levies refer to legal assessment against an employee’s wages which are initiated by the Federal or State Revenue Departments for payment of taxes. The Internal Revenue Code (IRC) authorizes levies to collect delinquent tax. Any property or right to property that belongs to the taxpayers or on which there is a Federal tax lien can be levied unless the IRC exempts the property from levy.

Usually, the IRS will levy only after the following three requirements are met:

  1. The IRS assessed the tax and sent you a Notice and Demand for Payment, a tax bill
  2. You neglected or refused to pay the tax
  3. The IRS sent you a levy notice Final Notice of Intent to Levy and Notice of Your Right to A Hearing at least 30 days before the levy. This notice may be given by the IRS to you in person, or at your home or usual place or business or to your last known address by a certified or registered mail, return receipt requested.

If you don’t pay your taxes or make arrangements to settle your debt and the IRS determines that a levy is the next appropriate action, it may levy any property or right to property you own or have an interest in. The IRS could levy your property which is held by someone else, such as your dividends, bank accounts, retirement accounts, wages, licenses, accounts receivables, the cash loan value of your life insurance, rental income, or commissions. Or the IRS could seize and sell property you own such as your house, boat or car.

Garnishments refer to legal assessment against an employee’s wages that are initiated by companies or individuals that have processed legal papers through a court. Federal law prohibits employers from firing a worker to avoid processing a garnishment payment. Garnishments can be taken for any type of debts such as unpaid court costs, child support payments, defaulted student loans, unpaid taxes and monetary fines.

The Consumer Credit Protection Act stipulates the amount of income which can be garnished from an individual’s wage. The garnishment amount is the lower of the following:

  • Any amount greater than 30 times the weekly minimum wage, which is $217.50
  • 25% of weekly disposable income if the individual’s disposable income is greater than $290

Individuals earning disposable income under $217.50 per week do not receive any wage garnishment. Those who receive a disposable income ranging from $217.50 to $290 per week can have any amount above $217.50 garnished. A maximum of 25% can be garnished on individuals having disposable earnings above $290. Disposable income or earnings refers to the amount left after the legal required deductions such as social security deductions and federal, state and local taxes are made.

The garnishment limits set by the Consumer Credit Protection Act do not apply to child support, student loans, bankruptcy orders, unpaid tax debt, or voluntary wage allocations. While the IRS can garnish up to 15% of an individual’s wage, the Department of Education can garnish up to 10%. If an individual has no other dependents to support, 60% of wages can be garnished for child support payments.

The lower garnishment limit applies since the Federal and State garnishment limits may differ. If an individual faces financial hardship due to wage garnishment, they may be eligible to file a claim to reduce the garnishment amount.

If you are facing levies or garnished wages, please contact us today to negotiate a better solution with the IRS.

Stephen Wallick June 27, 2018 No Comments

10 Things to do if you Owe Back Taxes to the IRS

The IRS Restructuring and Reform Bill of 1998 was a landmark law which put respect for the individual taxpayer back into the system. It forces the IRS to communicate with the public and grant taxpayers “due process” rights. When the IRS comes around to collect, sooner or later you are going to have to face the music. Playing games with the tax collector can have negative impact because the system is designed to make your life miserable.

Here are ten things to do if you owe back taxes to the IRS:

1. Do not ignore any IRS notices

Always respond to the IRS notices. Most people get into trouble because they ignore the computer-generated IRS notices. Some IRS notices are sent by certified mail. If you think you can ignore IRS notices by not going to the post office to pick them up, you are mistaken.

2. Never meet an IRS agent alone

Since IRS collection interviews are no picnic, you should have representation to wind up with much better results

3. Spend an hour with a tax expert before going to the IRS

Spending time with a tax expert will help you with preparation for your collection interview. A tax expert will tell you how to conduct yourself and make you aware of when the IRS revenue officer is attempting to take advantage of you. Always remember that the IRS revenue officer’s job is to collect money for the government.

4. The IRS must explain your rights during an IRS interview

As per the IRS publication entitled “The IRS Collection Process” revised in 2015, you have a right to be represented and that you have a right to be treated in a professional and courteous manner. If you don’t like the way you are being treated, you can stop the interview and ask to speak with a supervisor.

5. The IRS in not infallible

Recently the IRS was audited by the General Accounting Officer and it seems that their own house needs some cleaning. Usually, the IRS cannot keep track of how much you owe, especially if you have been making regular payments. The IRS makes mistakes so don’t take their word for everything. 

6. You may be an innocent spouse

If you are widowed, separated or divorced and have tax problems due to actions of your former spouse then you are entitled to innocent spouse relief. This relief could result in the entire tax bill being written off against you.

7. You have due process

The IRS can no longer just take your business, seize your bank account, automobile, or garnish your wages without giving you any written notice and an opportunity to challenge what it claims. When you challenge the IRS, all the collection activity must come to a screeching halt. You can even take them to the court and they cannot collect from you until the judge issues a decision.

8. You don’t go to jail if you can’t pay

Though you can go to jail for trying to trick the IRS or cheating on your taxes, you cannot go to jail for owing taxes to the IRS and the inability to pay.

9. Recognize the power of the IRS

IRS agents operate under very few rules and have more power than anyone in the federal government. They can make your life pleasant or miserable. Most success in dealing with them comes from your communication in a prompt manner.

10. You have options when you owe to the IRS

There are several options for people who owe taxes to the IRS. If you owe and can pay in full, you should pay the taxes despite the pain. But if you can’t pay in full then your options include hardship suspension, installment payment arrangement, bankruptcy, and offer-in-compromise.

It is important to pay the taxes you owe to the IRS as non-payment can negatively impact your life. Consult an experienced Enrolled Agent for assistance with working out a plan as per your budget and needs while ensuring proper procedures are followed.  

Stephen Wallick June 20, 2018 No Comments

10 Frequent Tax Preparation Mistakes Small Businesses Should Avoid

If you are a small business owner, it’s important to understand the small business tax preparation mistakes to avoid which could otherwise trigger overpaying taxes, errors that might cause an IRS audit, and financial penalties.

Here are 10 frequent tax preparation mistakes that you should avoid as owner of small businesses:

  1. Structuring Your Business Incorrectly

    How a business is structured can have a huge impact on how they are taxed. If you structure your business as a C-Corp, you are taxed twice. If you go for a sole proprietorship but don’t know how to account for certain items such as self-employment taxes, it can create problems later on. In general, an S-Corp or an LLC may be the best alternative.

  2. Improperly Classifying an Employee as an Independent Contractor

    While it may be tempting to misclassify an employee as an independent contractor due to cost savings, it would not be good for your business. There are strict rules for proper classification of an employee and steep penalties for failure to apply the law correctly. Additionally, if you misclassify your independent contractors as employees, you may end up paying higher taxes.

  3. Not Making Yourself an Employee of the Business Entity 

    Even if you are the owner of your business you should still make yourself an employee of the business entity with a reasonable salary. Failing to do so may result in additional social security taxes which are often collected in the form of the self-employment tax. When in doubt, consult a CPA or Enrolled Agent about this.

  4. Mixing Personal & Business Funds

    Many small business owners fall into the trap of not following the business formality of maintaining separate financial accounts for their businesses. Mixing business and personal finances can be quite chaotic during tax filing. Also, if your business is ever audited then it can get you into a lot of trouble with the IRS.

  5. Not Keeping A Mileage Log for Business Vehicles

    Not all small business owners keep a mileage log for their business. As per the Globe and Mail, if you use your personal vehicle for the business travels then the fuel that you use could be claimed for deductions during tax filing. Ensure to support these with necessary documents.

  6. Not Having a Tax Organizer

    It is important for every small business owner to have a tax organizer as it will provide you a glimpse of all the questions which the IRS asks your business such as about entertainment, travel and other important expenses. Keeping track of these things will save you time and will be a great help if you are ever audited.

  7. Having Disorganized Financial Records

    A disorganized financial record is one of the most costly business tax mistakes made by small businesses. If you properly document your business expenses, it can help reduce your taxable income. Further, all your financial transactions should be recorded properly. Ensure that your financial documents such as financial statements and balance sheets are accurate and readily available anytime.

  8. Not Keeping Your Accountant Informed

    This is one of the biggest tax mistakes most small business owners can make. If you don’t keep your accountant informed about what’s happening in your business, they won’t be able to provide you effective advice. Often when it’s time to file your taxes, it’s too late for them to help you make huge savings.

  9. Contributing Too Much to Your Qualified Retirement Plan or IRA

    If you contribute more to your retirement plan than the law allows, you could be penalized with a 6% excess contribution penalty that will apply every year until you correct the excess.

  10. Over-reporting Income

    If you over-report your income, it will lead you to pay more taxes than required. For instance, if you sell goods on which you collect the sales tax then your reportable income should not include the sales tax. You should always subtract the sales tax before reporting the income from the sales.

For an in depth review of your three past tax returns to see where you could save even more money, please contact me.

Stephen Wallick June 13, 2018 No Comments

What Happens When Your Business Gets Audited by the IRS?

With the beginning of the tax season, millions of Americans are getting their financial houses in order trying to maximize their deductions and capitalize on any new tax breaks recently passed onto the law. The annual ritual comes with a warning that many people take lightly: Do whatever you can to ensure that you don’t get audited.

Typically, the Internal Revenue Service (IRS) audits less than 1% of the tax returns annually, so the probability of drawing federal scrutiny is incredibly low. Though most of the audits consist of IRS employees asking a few questions for clarifications, a fraction of these include going after people (both the tax payers and tax preparers) who intend to defraud the government.

What happens when your business gets audited by the IRS

The IRS reserves the right to audit any taxpayer, even if they don’t see any discrepancies in your business. According to the IRS, taxpayers may fall under the audit scrutiny due to random selection, computer screenings, or just by being tied to other entities such as partnerships or other business collectives.

So here’s how an audit works:

  • The agency will notify you via mail

The IRS never initiates contact by phone or email and certainly not by text message or on social media platforms (as constantly stressed by them whenever an IRS Scam makes its way around). The IRS will use postmarked letters via snail mail. Once the correspondence has been received and contact has been established, this is where things typically get more intimate.

  • An in-person interview may be arranged

An agent will set up a meeting either at a local IRS office or at your home if necessary. According to the IRS website, “If we conduct your audit by mail, our letter will request additional information about certain items shown on the tax return such as expenses, income and itemized deductions. You can request a face-to-face audit if you have too many books or records to mail.”

  • What will you need to bring?

The IRS will tell you what to bring to the audit. The request documents may vary according to your situation. Basically you will need to support the income and losses you claim including the medical/dental records, deductions, credits, insurance reports and more.

    • If audit is initiated via mail, they will provide the address for you to mail the paperwork. You will also be asked to fill out a questionnaire. Some of the common forms are Schedule C query and the Travel, Meals & Entertainment query.
    • If your meeting is face to face, you will be instructed on what documents to bring. Before getting there, they will want you to organize your paperwork by year to speed up the process.

After getting all of your paperwork, the IRS will make a determination. However, don’t think that this will happen in a timely fashion. Generally, the IRS retains a three-year statute of limitations, and in cases involving the “substantial errors”, they can go back additional years (usually not exceeding six).

What happens when the audit is completed?

After the completion of an audit, you will be notified of the IRS’s determination. The three scenarios include:

   1. Substantiation

When the IRS determines verification of your tax information, you will be asked to sign the examination report and your filing will be processed as normal.

   2. Changes

The IRS will recommend adjustments/corrections to be made to your filing and you have to agree with them and make these changes. 

   3. Appeal

You have the right to talk to an IRS manager, file an appeal with the independent Office of Appeals by mailing a protest letter, or request the IRS’s Appeals Mediation Program, when you disagree with the agency’s findings.

Though the federal audit process is pretty straightforward, the process may slightly differ on the state level. For more details, please go through your state’s tax appeals division which is usually found within its Department of Revenue.

You can learn more about tax audits, IRS issue resolution and back taxes here. If you want to talk to an Enrolled Agent with the IRS, please call me today at 615-326-TAX9  

Stephen Wallick May 16, 2018 No Comments

Best Time to Reach Out to an IRS Enrolled Agent 

An IRS Enrolled Agent is a tax professional representing taxpayers in matters relating to the Internal Revenue Service (IRS) tax laws. This position is comparable to an attorney or an accountant specializing in IRS matters. IRS Enrolled Agents can choose to represent any taxpayer and may specialize in certain areas of tax law which they practice. The benefit of working with an enrolled agent is that we specialize in dealing with the IRS on your behalf.

Usually, the enrolled agent acts as a legal representative for the taxpayer in issues related to the IRS tax matters.  The enrolled agent must be accredited by applying for an enrollment care, which certifies that the agent has proven competence in the areas of tax laws. The services of an enrolled agent for tax problems are indispensable to resolving your IRS related tax issues.

There are circumstances when you need the help of an enrolled agent in order to solve an important tax problem. Here are some:

Specific Role of IRS Enrolled Agent for Tax Problem

Enrolled agents such as CPAs and tax attorneys are tax professionals licensed to represent the taxpayers in their dealings with the IRS. Enrolled agents are specialists in dealing with the IRS related matters as they need to work with the IRS for five years or pass a series of tough tests conducted by the IRS to establish their competence for representing the taxpayers before they can qualify for the license. All the enrolled agents are required to undergo a background check and many hours of Continuing Professional Education (CPE) to keep them up-to-date.

Since the enrolled agents are licensed by the US government and not by the individual states, they can practice across the country. Because of all these specific qualifications, you should consider an enrolled agent for your tax problem, especially if the nature of the problem is related to areas such as the IRS audit representation, unpaid back taxes or to counter an impending tax lien or tax levy on your account.

The best time to reach out to an IRS Enrolled Agent

During uncertain economic times, more and more people find themselves unable to fulfill their tax obligations to the IRS. These same economic conditions cause the IRS to crack the whip on defaulters and adopt every possible means to enforce the collections. In fact, recently the enforcement budget has increased and the IRS has added and intends on adding more staff to their team for greater effectiveness. So, if you have piled up the unpaid back taxes, chances are that the IRS may come knocking your door soon. To avoid a visit from the IRS, you should reach out to an experienced IRS enrolled agent for your tax problem.

An IRS enrolled agent is the best tax professional to help you if your tax problems are specifically related to the areas such as IRS audits and responding to the IRS collection enforcement. If the IRS has expressed intent to place a lien on your physical assets,  place a tax levy on your bank accounts, or garnish your wages, then it is time to contact an IRS enrolled agent. If a levy has already been placed, then the IRS enrolled agent will help to release it.

The following are examples of some of the resolutions which an IRS enrolled agent can negotiate on your behalf:

  • Penalty Abatement
  • Offer in Compromise
  • Payment Plans
  • File Unfiled Tax Returns
  • Innocent Spouse Relief

It is best to reach out to an IRS enrolled agent because they specialize in matters of tax law and are well-versed in the regulations and workings of the IRS. If you have been contacted by the IRS for an audit, or if a lien has been placed against you, we can help you find the best possible solution to your tax problems. Contact us today.

Stephen Wallick May 9, 2018 No Comments

5 Top Tips for Independent Contractors for a Painless & Stress-Free Tax Season

Independent contractors has great advantages while earning a living which includes flexibility of setting their own schedule, the freedom of being their own boss and say yes or no to the work as per your interest and availability. Additionally, the age of the Internet makes this occupation easier and more in demand than ever. But the catch is many think that things tend to get more complicated for independent contractors when it comes to the tax season.

So here are 5 top tips for independent contractors that can make filing taxes as painless and stress-free as possible:

  1. Keep track of your paperwork

Come April 15 the deductions are a key way to trim your tax bill. So keep all the paperwork for your business related travel, gas mileage, office supplies and other business related deductions. The strategy is to keep a file on your desk for these receipts and one in your car and throw the receipts in as you get them. This will save your considerable time and effort. And you will be way ahead of the game in the unlikely event of an audit. 

2. Hunt down your 1099’s

It is small but simple things ensure that each of your employers has sent you a 1099-Misc. If you are a part-time freelancer having just one or two gigs then it is easy for you to keep track of 1099’s. However, if you have gaggle of clients then have a quick checklist of who has and hasn’t sent you the proper form so that you don’t file without all the proper information. You should receive a 1099 by early February in any given year hence, any time past this is when you should start making calls. It is worth noting that clients only require to give you a 1099 if you have earned over $600 from them. The IRS will also get a copy of this form and you will want to ensure that when filing your return your income matches those 1099’s. A big red flag for the IRS is small business owners pocketing more cash than disclosing them.

3. Hire your family members

Another great way to save on your taxes is to hire your spouse or children to do a little work for you. If your spouse works for you then you can get a tax break on medical insurance while if you hire children to do things to help your business then you can in effect move a bit of your income to your children who may not be subject to the unemployment taxes and the social security tax.

Retirement planning

A great way to protect some of your hard earned income is to open a self-employed retirement plan. You are allowed to put in up to 20% of your earnings into this retirement plan called a Simplified Employee Pension Plan or a Keogh plan. You can contribute maximum amount of $52,000 a year to this retirement planning which is a great way to save some money and protect some of your income.

5. Don’t do it yourself

Freelance and independent contractors are as independent as they come. But the tax hurdles for them are far more numerous than for the typical 9-to-5ers and the risk of potential penalties isn’t worth taking. This goes double for people who are new to the gig economy. It is one thing to try to swing it yourself with the tax accounting software once you have been on your own for a few years but if you have just started then don’t do it yourself. Instead seek advice from a professional tax accountant having experience with freelancers, small businesses and independent contractors.

Now that you know the 5 top tips for filing taxes as independent contractors, I hope that doing business on your own doesn’t mean wrestling with your taxes on your own. Get in touch with us to get help with the affordable tax services for keeping your hard-earned income and also keeping yourself on the right side of the IRS.

Stephen Wallick May 2, 2018 No Comments

Understanding the Basics of Payroll Taxes

What are “Payroll Taxes”?

Payroll taxes are taxes that an employer withholds and pays on behalf of his employees. They are based on the wage or salary of the employee. In most countries including the US, the federal authorities and many state governments collect some form of the payroll tax. The governments use revenues from the payroll taxes to fund the programs such as health care, social security, unemployment compensation and workers compensation.

Sometimes, the local governments will collect a small payroll tax to maintain and improve the local infrastructure and programs including:

  • Road maintenance
  • First reports
  • Parks and recreation.

What do the Payroll Taxes Include?

The US federal payroll taxes include the following:

Federal Income Tax Withholding

Taxes withheld from the employee pay for the federal income taxes (FIT) owed by the employees. The amount of FIT is determined by the information provided by the employees on Form W-4 at hire. This form can be changed by the employee at any time and as often as they wish.

Taxes Paid for Social Security and Medicare called FICA (Federal Insurance Contributions Act) Taxes

Employees and employers share these FICA taxes with the employer deducting the employee share which is one-half of the total due from the employee salaries/wages and the employer paying the other half. The payroll taxes also include the amounts payable by the businesses for FICA tax that are equal to the amounts paid by the employees.

The Payroll Tax Process

An employer calculates the gross pay for an employee and, based on the employee’s gross pay, will deduct a specific amount for:

  • Federal income tax based on the W-4 form the employee has completed most recently
  • FICA taxes

FICA Tax Withholding Rates

The employee tax rate for social security is 6.2%. Also, the employer tax rate for social security is 6.2%: 12.4% total. The social security share of the tax is covered each year at a maximum wage subject to social security. The employee tax rate for Medicare is 1.45% amount withheld while the employer tax rate for Medicare tax is also 1.45%: 2.9% total.

Starting from the 2013 tax year, an additional Medicare tax of 0.09% has been imposed on the higher-income individuals. This tax is applicable on income over $200,000 each year and is payable based on the individual’s income level and federal tax filing status. There is no wage limit for the Medicare tax and all covered salaries and wages are subject to the Medicare tax.

How do State Payroll Taxes Work?

The state payroll tax includes the state income tax withholding for those states which imposes the income taxes. Additionally, other state payroll taxes are:

  • State worker’s compensation funds
  • State disability funds (California is one of these states)
  • State unemployment tax funds

Depending on where your employees work the state payroll taxes apply to your business.

How do Employers Pay Payroll Taxes?

The payroll tax process includes several steps. After you have completed the calculation of the amounts for federal income tax withholding and FICA taxes and withheld these amounts from the employee paychecks:

  • After completion of the payroll process, you must calculate the amount you as a business must pay for FICA taxes and set aside those amounts
  • Finally, you must make payments to the IRS either monthly or semi-weekly depending on the size of your total employee payroll
  • You must report on payroll taxes quarterly using Form 941

Please note this information is only intended as the basics of payroll taxes, hence, it is not a tax or legal advice which you can rely upon for your business. Consult a tax or legal professional for proper guidance and specific advice related to your business.

Stephen Wallick April 25, 2018 No Comments

Everything You Need to Know About Estimated Quarterly Payments

The IRS expects to receive tax payments according to the income you are projected to earn in a given year. This is referred to as “pay as you go” system or estimated quarterly payments. These payments are estimated based on your total income from the previous year’s tax return. These quarterly payments help to ensure that you pay no unnecessary penalties at the end of the year for underpayment.

The estimated quarterly payment is a method to pay tax on the income which is not subjected to tax withholding. This can include the income from your business earnings, self-employment, interests, dividends, rent, and other sources.

If you are employed full or part-time, your taxes will be sent directly to the IRS as they are withheld from your paychecks. If you are self-employed or an independent contractor, you need to make tax payments in the form of estimated quarterly payments or estimated tax. Typically, the IRS requires the estimated tax to be paid quarterly, i.e. in 4 equal installments spread throughout the year. If you underpay your estimated quarterly payments, you will have to write a bigger check to the IRS when filing your tax return. If you overpay your estimated tax, you will receive the excess amount as a tax refund which is same as how withholding the tax works.

Here’s a look at who needs to make the estimated quarterly payments and how to make the quarterly payments:

Who Need to Make the Estimated Quarterly Payments?

There are many factors which determine whether you need to make the estimated quarterly payments. As a general rule is if your tax liability is $1,000 or above for the year then you are expected to make the estimated quarterly payments. If you owed more than $1,000 in taxes when you filed your tax return for the previous year then the IRS expects you will either have more tax withheld from your paychecks or that you will make the estimated tax payments the following year.

Generally, the following people are required to make the estimated tax payments:

  • Self-Employed Persons or Sole Proprietor Business Owners

Those who have income from their own business will need to make the estimated quarterly payments if their tax liability is expected to be over $1,000 for the year. This includes both part-time and the full-time enterprises.

  • Partners, Corporations and S Corporation Shareholders

Usually, the business ownership earnings will need estimated quarterly payments. In the case of corporations, the estimated quarterly payments must be made if the corporation is expected to have at least $500 in tax liability.

  • People Who Owed Taxes for the Previous Year

If you owed taxes at the end of previous year, it probably means that too little was withheld from your paychecks or you had other income which increased your tax liability. This is a flag to the IRS that you should be making the estimated quarterly payments.

How to Make Estimated Quarterly Payments?

The IRS Form 1040-ES (Estimated Tax for Individuals) is used for calculating and making the estimated quarterly payments. To determine how much you are required to pay for the estimated quarterly tax, you must compile your income, credits, deductions and the paid taxes- similar to filing a yearly tax return. Typically, you can look at your income/liability numbers from the previous year to gauge what you’ll owe the next year.

To make your estimated quarterly payments, the year is divided into 4 payment periods in which each period has a specific payment deadline. Failing to make the estimated quarterly payments on time can result in the IRS penalties:

  • 1st Quarter: January 1- March 31. Deadline: April 15.
  • 2nd Quarter: April 1-May 31. Deadline: June 16.
  • 3rd Quarter: June 1-August 31. Deadline: September 15.
  • 4th Quarter: September 1- December 31. Deadline: January 15 of the following year.

Note that it is important to make the estimated quarterly payments. Even if you have already missed a few installments of the estimated tax, you should still try making the estimated payments as soon as possible.

Contact me to setup your payment schedule and figure out how much you owe quarterly. 615-326-TAX9