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Some taxpayers have yet to send money to Uncle Sam this April, despite the fact that the IRS has extended the tax filing season to May 17th.
Those making estimated tax payments still have to pay their first quarterly levy, due on the original April 15th tax return deadline.
This includes people whose income cannot be withheld, such as B. Self-employment income, interest, dividends, rent and alimony, according to the IRS.
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This primarily affects freelance and gig employees, as well as small business employees such as sole proprietorships, partners, and S Corporation shareholders – generally anyone who doesn’t work for an employer who withholds taxes from their paychecks.
The due date is a change from 2020 when the IRS moved the deadline for the first of four estimated tax payments due to the coronavirus pandemic to July 15. However, the agency did not roll back the three remaining payments – the second quarterly payment was also due on July 15, 2020.
What do you have to do
To avoid penalties for underpaying estimated taxes, individuals who owe more than $ 1,000 in tax after withholding taxes and credits must pay the IRS at least 90% tax for the current year or 100% tax for the previous year, as the case may be which value is smaller.
This tax is paid in four quarterly installments and can be sent to the IRS either online or with a check. For those with constant income all year round, these payments are generally the same, but can be varied for those with unequal incomes.
Since taxpayers need to know their last year’s earnings based on their estimated payments, this group is unlikely to be able to take advantage of the extended filing season.
To calculate a quarterly estimated payment, taxpayers must either project their income for the year or have the previous year’s income on hand as they would on their tax return.
“You have yet to complete the 2020 return to get a bottom line estimate,” said Rhonda Collins, director of tax content and government relations for the National Association of Tax Professionals. “So it will still be a bit of work for the taxpayer.”
In addition, small businesses and self-employed people who pay estimated taxes are particularly hard hit by the Covid pandemic and may have several problems that would make tax filing difficult. Some may have loans through the paycheck protection program, a disaster loss loan, or a grant.
“When you put all of these things on top of each other, there really is no relief to these people,” said Barry Melancon, accountant, auditor, and president and CEO of the American Institute of CPAs.
There are penalties for missing a payment
Meeting the estimated April 15 tax deadline can help those who need to make the quarterly payments to manage their cash flow year-round, said Sheneya Wilson, CPA and founder of Fola Financial in New York.
Even if you make estimated payments, you can calculate what you owe for April 15 and use the extension to file your tax return later, Wilson said.
If you miss the first payment or underpay, the penalties are usually small, according to Adam Markowitz, an agent registered with Howard L. Markowitz PA CPA in Leesburg, Florida.
If it doesn’t get done, it won’t be the end of the world.
registered agent, Howard L Markowitz PA CPA