Estimated Tax Payments – Individuals

Tax and Money Tip of the Week
Estimated Tax Payments – Individuals
August 10, 2011 | No. 55

Estimated tax payments need to be made by individuals to provide for current payment of income taxes not collected through withholding on a W-2 or Form 1099.

The tax law requires individuals to pay these taxes currently. The first general rule is that at least 90% of a person’s current year income tax is to be paid through withholding and/or estimated tax payments to avoid penalties and interest. Form 1040 ES is used for Federal Estimated Tax Payments to the Internal Revenue Service; Form NC-40 is used for NC Estimated tax payments to the NC Department of Revenue. The due dates for these payments are as follows: April 15th; June 15th; September 15th; and January 17th, 2012. If 90% of the tax is not paid, you will be penalized and charged interest.

Exception to the general rule:
Individuals may make what is called a “safety” set of estimates for federal purposes:

If a joint return taxpayer makes less than $150,000 in adjusted gross income, they pay 100% of the prior year’s tax return tax liability, they will be “safe”. Even if they make a lot more income in the current year, they may pay the balance due of taxes with their individual income tax return due the following April 15th without penalties or interest and hold on to their money until April 15th.
If a joint return taxpayer makes $150,000 or more in adjusted gross income, they must pay 110% or more of their LAST YEAR tax liability, and they will be “safe”.

I have used this exception over the last 30 years in my CPA practice and allowed folks to hold onto their money and make interest and profits and pay thousands and millions on April 15th with their tax returns penalty and interest free under these legal exceptions. This exception works the best when a client has a BIG income year and needs guidance.

The most important thing is to professionally and properly do tax planning with your CPA throughout the year, not just at tax time.

It can save many times their fee. And, clients will pay current year taxes with current year income and not be surprised!

Call us if you need help.
Questions or Comments?

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Mark Vitek, CPA/PFS, CFP®
mark@markvitekcpa.com

…until next week.