@ferrarellaf wrote:
Thanks to both who replied.
This is great info for the general run of the rental operation - I need however to understand if the IRS is expecting some payment before tax filing day, on the rental income collected during the year.
Is the rental income going to be treated as other income, and therefore estimated taxes need to be somehow paid to avoid any underpayment penalties?
Thanks.
The IRS is pay-as-you-go. You can be penalized if you owe too much tax at the end of the year, even if you pay in full when you file. Quarterly payments are due on the following schedule.
| Income earned |
payment due |
| Jan 1-Mar 31 |
Apr 15 |
| Apr 1-May 31 |
June 15 |
| June 1-Aug 31 |
Sept 15 |
| Sept 1-Dec 31 |
Jan 15 |
(the quarters are not equal in length)
You can avoid a penalty by making estimated payments into the system, or by increasing your withholding from a regular job to cover the taxes from a side gig (including rentals).
Even though estimated payments are technically always owed, you won't be assessed an underpayment penalty if you meet one of three tests:
a. you owe less than $1000 when you file your return
b. your payments and withholding equal 90% or more of your current year tax liability
c. your payments and withholding equal 100% of last year's tax liability (or more than 110% of last year's liability for certain high income taxpayers)
Your tax liability is what you actually owe the government, regardless of payments or refunds. For example, if you made payments and withholding of $10,000 and got a $1000 refund, then your tax liability was $9000. Likewise, if your payments and withholding were $8000 and you owed an additional $1000 payment, your liability was $9000.
Also note that as per @Carl , rentals can sometimes generate positive cash flow but a tax loss on paper, so you might not actually have any taxable income that would require estimated payments (depending on your income, expenses, deprecation, and so on).
