Most people hate to have to owe taxes on April 15th and then have to write that big check to the IRS. If you are one of those people here are the steps you can take:
- Correct your withholding from your paycheck(s). The IRS has a good calculator at this website that is fairly easy to use https://apps.irs.gov/app/withholdingcalculator/. This works well if you are a wage earner and if you have some non-wage income. If your non-wage income is much greater than your wage income you will have to make quarterly estimated payments.
- If you are a business owner or self employed you will need to determine and pay estimated taxes each quarter. Those due dates are April 15th, June 15th, September 15 and January 15th the following year. Remember you have to account for both your income taxes and your self employment taxes (Social Security and Medicare). I recommend that you pay your taxes monthly instead of quarterly, it is easier to save one month’s worth of taxes than it is to save and then write a check for 3 months worth. Also use the Dept of Treasury’s EFTPS system to schedule and pay your taxes, it beats sending checks in the mail.
- If you are are taking money out of a 401K or an IRA tax deferred plan you will need to either have taxes withheld correctly or make an estimated payment of taxes. If you are taking out this money before you are 59 1/2 you will also pay a 10% penalty in addition to your normal income tax. Be aware that your normal income tax rate will likely be increased with this additional income. The overall tax rate can quickly get to 40% in those situations!
- Windfall profits from the sale of stock or the sale of property will require some calculation to determine the taxes since there are different tax rates and the ‘basis’ of the sale will need to be subtracted from the total income. Normally there is not a withholding option for this type of income so you will have to make an estimated payment. Another option is to set that money aside and pay it on April 15th.
So these are some the scenarios most people face trying to get their taxes right for April 15th. If you need help with your situation you can contact us for help.