If you have been an employee all your working life, you are probably used to have tax withheld from your pay.
When it comes to retirement time, however, you might be surprised to find that you may need to make estimated tax payments on your income four times a year.
For some people, the days of simply filing a tax return at the end of the year and pay taxes due disappeared.
they may end up paying penalties and interest on the amounts they should have paid throughout the year they failed to make estimated tax payments.
So how do you know if you need to make payments of estimated taxes or what alternatives are available?
Here are answers to frequently asked about estimated tax payments issues.
do I make quarterly estimated payments?
If you have a substantial investment income, taxable withdrawals from retirement plans or other sources from which you do not have income tax withheld, you probably need to make quarterly estimated payments to avoid penalties and interest.
However, if your income is low, you may have little or no federal tax government income. For example, if you owe less than $ 1,000 after you file your taxes, you will not owe a penalty.
If your income was modest in the previous year, the rules of the safe harbor may also prevent you from penalties and interest due.
If your withholding tax on total income and estimated tax payments in a timely manner at least 0 percent of the tax shown on the return of the year, or 100 cent of the tax shown on the tax return for the previous year, you will not pay a penalty.
If your tax debt last year was zero, you will not need not to make estimated tax payments throughout the year.
the best way to determine if you will pay more than $ 1,000 in tax for the year is to use the TaxAct tax calculator to estimate your taxes.
Can I avoid estimated tax payments?
It is not difficult to make estimated tax payments. However, if you really do not want to be bothered with them, here are two alternatives:
- Increase source of income You can have the withheld pension withdrawal tax or. other types of income. If your spouse is still working, he or she might consider increasing its withholding tax on income. .
- Take several withdrawals of pension tax free. If you have Roth and traditional IRA, for example, plan your withdrawals to minimize your taxable income for the year.
- Practice good tax planning. If the thought of making estimated payments motivates you to plan more carefully your tax year, which is a good thing. For example, consider making charitable donations and pay the deductible costs before the end of the year. Do not take more of taxable pension withdrawals you need. You can also consider selling investments that have decreased in value when it is advantageous tax for you to do so.
tax payments How can I make estimated quarterly?
If you need to make quarterly payments, you can calculate the amount you have to pay with TaxAct tax calculator and print quarterly payment vouchers.
Each quarter, you will need to print a voucher, send a check or money and send it to the IRS by each due date of the coupon.
If you prefer to pay electronically, you can set up Electronic Funds Withdraw (EFW). This can also be done by TaxAct, and your quarterly payments will be deducted from your bank account automatically.
The IRS also has a free payment system called Electronic Federal Tax Payment System (EFTPS). You can set it to www.eftps.gov/eftps.
However, you'll need to plan ahead to use EFTPS as it requires you to receive a personal identification number EFTPS (PIN) and set an Internet password.
Another option is to pay by credit or debit card using the phone system and Web site set up by the IRS. This should be a last resort because you will likely pay additional convenience fee to your bank with this method.
Do not forget that you may need to make tax payments to the State estimated if your state has an income tax.
of estimated tax payments are due on 15 April, 15 June, 15 September and January 15. When the due date falls on a weekend or holiday, the due date is the day next business.
I recently retired, but did not make estimated tax payments. Am I in trouble?
Go ahead and relax on it. You are not the first retired to be surprised by the requirements for estimated tax payments.
The worst that can happen is the IRS can charge you penalties and interest based on the difference between when you should have made payments and when you actually do.
in some cases, if you find yourself with a penalty, you might be able to have subsided for at least the first period of time in which you should have made an estimated tax payment.
to receive this potential deduction, you will need to write the IRS, explain the situation and ask specifically for reduced penalties.
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