Decreasing Estimated Tax Payments

[Nicole E]

My husband is self-employed, and I've typically scheduled auto payments for estimated tax payments based on the amount that is suggested at the end of the previous tax year. It's been a really slow income year so I want to confirm that as long as we've made estimated tax payments to cover what we owed during last tax year, we will not be penalized for this year's tax filing. 

[MarthaT]

Hello and thank you for your questions.

Normally it is the estimated payments that helps you not to pay penalties but if you believe you are making more money than the previous year it is recommended to increase the amount because you are going to have  underpayment penalties.  The IRS wants their money before the end of the year if your tax liability is going to be more than $1,000.00 otherwise the IRS levies underpayment penalties.

You can use the Tax calculator to estimate your taxes at https://turbotax.intuit.com/tax-tools/

You can also find additional information at https://ttlc.intuit.com/community/tax-payments/help/why-am-i-getting-an-underpayment-penalty-if-i-m-...

I hope this answered your question.  Thank you so much and have a wonderful evening

[BeckyLeeH]

Hi Nebat,

Some years are better than others for business income, especially self employed people.
Hope things pick up for you as the months go on this year.

You are correct, as long as you make 2023 estimated tax payments to cover the total 2022 tax you owed ,

 you will not have an underpayment penalty when you file your 2023 tax return.

You might find this Turbo Tax Community information helpful:

https://ttlc.intuit.com/community/taxes/discussion/avoid-underpayment-penalty-with-quarterly-estimat...

Avoid underpayment penalty with quarterly estimated tax payments

Best wishes for your business

Becky

. 

[Nicole E]

Thank you, @BeckyLeeH , this was helpful. I took a look at the link you sent and specifically read the following post: 

Withholding is not the only consideration. However if estimated payments were not paid on time (April, June, September and January), then there can be a shortfall in any one of the quarters which will create the underpayment penalty.  This can occur even if you have a refund and even if you, in total, meet the 100% or 110% depending on income (prior year tax liability) or 90% of the current year tax or $1,000 total tax due.

The IRS system is 'pay as you go' meaning when the taxable income occurs, they want the tax at that time and not at the end of the year.

I understand this to mean that there can be a penalty if you don't make payments in the quarter that income is received? So, it doesn't matter if we're on track to overpay for the year in the past 2 quarters of estimated tax payments, we'd still need to make a payment in this quarter. If this is a correct assumption, could I decrease the estimated tax payment amount so we're not having to pay as much so there's a payment recorded to avoid the tax underpayment for this quarter?