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September 15th is fast approaching – and if you don’t have taxes withheld from your income, it’s time to send a payment to the IRS.
While many employers withhold taxes from every paycheck, freelancers, self-employed people, small business owners, investors and others pay taxes themselves through quarterly estimated tax payments.
Typically, you’ll need to make quarterly estimated payments if you expect to owe $1,000 or more annually. Last week, The IRS reminded filers of this that these payments can help “avoid a surprise when filing your taxes.”
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“Estimated tax payments are critical to meeting tax obligations throughout the year, avoiding penalties and staying on top of your finances,” said Sean Lovison, Philadelphia-area certified financial planner at WJL Financial Advisors. He is also a certified public accountant.
It’s important to calculate tax payments accurately, pay on time and consider complying with the “safe harbor” rule to avoid penalties for underpayments, Lovison said.
“Keep records, monitor your tax situation and seek professional advice to ensure a smooth tax experience,” he said.
Meet safe harbor requirements
Since the US tax system is based on the “pay-as-you-go” principle, this is possible Those who don’t stay current face penalties, said CFP Kathleen Kenealy, founder of Katapult Financial Planning in Woburn, Massachusetts.
If you miss any of the four estimated tax payment deadlines for 2023 – April 18, June 15, September 15 or January 16, 2024 – you will be charged a late payment penalty of 0.5% of your unpaid balance per month or part of the month. up to 25%, plus interest.
However, the IRS has a “safe harbor” to avoid penalties for underpayments, Kenealy explained. You meet the requirements by paying at least 90% of the current year’s tax liability or 100% of the last year’s tax liability, whichever is less.
But the rule is “a little different for high-income taxpayers,” she said. If your adjusted gross income was $150,000 or more in 2022, you must pay the lesser of 90% of current year tax liability or 110% of last year tax liability to meet the 2023 safe harbor requirement. (The adjusted gross income is Line 11 your 2022 tax return.)
According to the IRS, electronic payments are the “easiest, fastest and safest” option for estimated tax payments.
Online options include payments through your online account, through Direct Pay, the Electronic Federal Tax Payment System and more. However, fees apply for debit and credit card payments. Learn more about making payments Here.
https://www.cnbc.com/2023/09/11/irs-meet-this-sept-15-deadline-to-avoid-a-surprise-at-tax-time.html Meet the September 15 deadline to “avoid a tax return surprise.”