The next due date for individual estimated tax payments is September 15. Are you prepared?
Individuals must pay 25 percent of a required annual payment by Apr. 15, June 15, Sept. 15, and Jan. 15, to avoid an underpayment penalty. The required annual payment for most individuals is the lower of 90 percent of the tax shown on the current year’s return or 100 percent of the tax shown on the return for the previous year.
High-income individuals must meet a more rigorous requirement. If the adjusted gross income on your previous year’s return is over $150,000 you must pay the lower of 90 percent of the tax shown on the current year’s return or 110 percent of the tax shown on the return for the previous year.
If you fail to make the required payments, you may be subject to an underpayment penalty. The penalty equals the product of the interest rate charged by the Internal Revenue Service (IRS) on deficiencies, times the amount of the underpayment for the period of the underpayment.
The term “safe harbor” refers to making payments equal to 100 percent (or 110 percent for high-income) of the tax paid on your previous year’s income tax return. This may or may not be the most advantageous for your tax situation. A current year tax projection may determine that you are better off paying 90 percent of your current year tax.
If you would like to meet with one of our tax professionals to discuss a tax projection for your situation or have any other specific questions about how the estimated tax rules apply to you, please give our experienced team a call. We would be happy to meet with you.