It is time to make your quarterly estimated tax payments
The Corona virus may have slowed our economy, but the IRS is still expecting quarterly estimated tax payments. While most taxpayers have their income taxes withheld from their paychecks by their employers, others such as small business owners, self-employed workers, and those receiving investment income must make 2020 estimated tax payments due quarterly with two more deadlines coming this year—September 15 (for period June 1 – Aug. 31) and January 15, 2021 (for period September 1 – Dec. 31).
Who are the self-employed workers?
Instead of receiving a W-2, self-employed individuals would receive a 1099. They include independent consultants, hair dressers, freelancers, independent health care workers, massage therapists, drivers, etc.
How do you determine how much you should pay each quarter?
The key to success when determining just the right amount of tax to pay the IRS is how diligent you are when tracking your income and expenses. When done with clear accuracy you should be able to make a precise estimate of your tax liability.
What happens if you overpay or underpay your tax liability?
Pay too little, you will pay penalties and interest on the unpaid balance not to mention the additional tax liability that may be due. Pay too much, then the IRS has use of your money at zero percent interest rather than you. I am sure you will agree that you can find a better way to use the money than giving it to the IRS!
What happens if you have been collecting unemployment during Covid-19?
Your unemployment check is subject to federal income tax. Be sure that the right amount of income tax has been withheld from your unemployment check. You may need to pay more than is being withheld.
What other income tax liability scenarios should you be aware of?
If you receive Social Security benefits or retirement benefits, you may find that the income tax withheld is too low. You receive significant earnings (i.e. dividend and interest) from investments or you sold an investment property or stocks resulting in capital gains, income tax may be owed.
See links below for additional information from the Internal Revenue Service.
Some taxpayers may need to make estimated tax payments
People should have their tax withheld from unemployment now
Do you need assistance in determining your federal tax withholding? Give Felsing LLC a call at 407-412-9299.
