Estimate Tax

WHAT ARE ESTIMATED TAX PAYMENTS?

Payments are usually made quarterly in anticipation of owing a large tax payment at the end of the year. If you underpay your estimated taxes, you will have to write a bigger check to the IRS when you file your tax return. If you overpay your estimated tax, you will receive the excess amount as a tax refund (similar to how withholding tax works). The following types of people are typically required to make estimated tax payments:

• Self-employed Persons or Sole Proprietor Business Owners. Those who have income from their own business will need to make estimated tax payments if their tax liability is expected to be more than $1,000 for the year. This includes both part-time and full-time enterprises.
• Partners in Partnerships and S-Corporation Shareholders. Business ownership earnings usually require estimated tax payments. These individuals will receive form K-1 representing their income and expenses from the partnership/S-Corporation.
• People Who Owed Taxes for the Prior Year. If you owed taxes at the end of the previous year, it probably means that too little was withheld from your paychecks, or you had other income that increased your tax liability. This is a red flag to the IRS that you should be making estimated tax payments.