Question on Estimated Tax Payments - Quarterly Estimated

[davsea17]

Hello,

Wondering if Estimated Payments is required  or just encouraged for small business? and you can just make the extra interest payments at the end of the year etc? Or if the amounts are large or any additional penalties? thanks!

[JohnB5677]

Yes you should pay estimated taxes.  Penalties may be assessed and interest is accrued daily.

Yes you can make estimated tax payment online.

If you make $20K you would be in the 10% tax bracket.  If single you would get a $12,400 standard deduction. 

Yielding a tax of $960.

However, if you are self employed you will have to pay self-employment tax (Social Security & Medicare).  This is an additional 15.3% on the entire $20K.

That would be an additional tax of $3,060.

Coming to a total tax of $4,020

The underpayment penalty may apply if :

• The amount of tax you paid during the tax year is less than 90% of the tax that you owed for the current year. 
  • Example:  in 2020 you had $8,500 withheld in taxes.  Your 2020 tax return shows that you owe $10,000.  That is less than 90% and there will be a penalty.
• The amount you paid during the tax year didn’t at least equal 100% of your taxes owed the prior year. 
  • Example:  Your 2019 tax return showed that you had $9,000 as a total tax obligation.  You paid $9,001 in withholdings in 2020.  Your 2020 tax bill comes in at $20,000.  There is no penalty because you paid 100% of the 2019 tax.
• The IRS also says you can probably avoid the penalty if the amount you owe is less than $1,000, after subtracting withholdings and refundable credits.

[davsea17]

Thanks, wondering if say you owed 4k tax 1k federal and 3k SE tax...etc

and you didn't make estimated payments, what would approx be the penalty?  my mind can't seem to find any info to calculate except 365 and 4% and on and on 

And if estimated payments aren't made, it is just that amount at the end of the year etc during next filing or is there some additional penalty?

thanks!

[DianeW777]

The IRS interest rates are relatively low, for example the rate for underpayment currently is 3%.  Click here for the first quarter rates.

On the Form 2210 it is broken down further based on number of days paid late.

[davsea17]

Thanks....so to make it easy, say you owed 1k in tax and didn't make Quarterly payments.

Would you be looking at $30 extra at the end of the year, or is there some other strange calculations involved?

And any other penalties that could show up?

Thanks again. 

[Mike9241]

there is a "safe" ways to avoid penalties for 2021.   

1) withholding and estimated tax payments for 2021= 100% of 2020 tax (110% if 2020 adjusted gross income over $150,000) - the easiest method - withholding is assumed to be spread evenly over the year regardless of what the actual withholding is for each period.   so 1/4 of the year's total withholding is spread over each estimate period.   total 2020 tax less 2021 withholding = 2021 estimates of which 1/4 of the total must be paid on or before 4/15,6/15, 9/15 and 1/15/2022 

2) withholding and estimated tax payments for 2021 = 90% of 2021 tax (good luck in figuring out what that will be) 

3) 2021 tax less withholding leaves a balance of $1,000 or less. 

4) 2021 tax less than $1,000 no estimates or withholding required.

not quite sure if the 20K is taxable income or gross income before standard or itemized deductions.or whether you have self-employment income. 

[davsea17]

Thanks!