Individuals typically pay their taxes in one of two ways, by having money deducted from their paychecks which is managed by the business they work for, or by making quarterly payments directly to the IRS. Paying taxes throughout the year is an important aspect of being a taxpayer. Withholdings or making payments to your estimated quarterly taxes is known as “pay-as-you-go” and can be paid to the IRS. By doing this, you are able to meet your yearly tax obligations in a timely manner and it spreads out what is owed over four payments instead of one large lump sum payment.
Who needs to make estimated quarterly tax payments?
It is necessary for taxpayers who are working independently as freelancers, or contractors, or whose company doesn’t provide withholding taxes to make quarterly payments to the Internal Revenue Service (IRS). This includes people who earn income from self-employment.
Taxpayers who are indebted to the IRS from their previous year’s tax filing are more likely to find themselves in a similar situation when they submit their subsequent year’s taxes. This is commonly found among the following groups of people:
- Those who itemized in the past but are now taking the standard deduction,
- Two wage-earner households,
- Employees with non-wage sources of income such as dividends,
- Those with complex tax situations and/or
- Those who failed to increase their tax withholding.
It is important to remember that most types of income are taxable according to the Internal Revenue Service (IRS). It is important to be aware of what can be considered taxable income. It is essential to take into account all forms of earned income when calculating quarterly tax payments, including unemployment benefits, interest from returns, and the income derived from activities such as the gig economy and digital assets. Additionally, this would include any earnings obtained through part-time work or selling products online.
One should be aware that certain financial operations, particularly at the end of the year, can impact your tax situation in unexpected ways. Such examples of year-end income that are taxable include; holiday bonuses, stock dividends, capital gain distributions from mutual funds, stocks, bonds, royalties, virtual currency, real estate, or other property sold at a profit.
How to make payments for your estimated quarterly taxes
IRS Direct Pay is the most convenient way for making payments on estimated quarterly taxes before the due date in January. This option simplifies the payment process and helps avoid any delays or penalties.
The IRS has made paying taxes much easier by allowing taxpayers to use their online accounts. Through this system, taxpayers can track their payments and gain access to important tax information. The Electronic Filing Tax Payment System (EFTPS) is an additional payment option that many people find convenient. The IRS does not charge a fee for these services, and using electronic payment options ensures that payments are credited promptly. For more information on other payment options, please visit IRS.gov/payments.
Or, you can contact Cowdery Tax for assistance in paying quarterly tax payments.
Remember that the deadline for 2022 estimated quarterly tax payments is January 17, 2023.
You have the option to pay your tax either through withholding or making payments on estimated quarterly taxes, or a combination of both. This ensures that you don’t have any unexpected bills or penalties at the time of tax filing.
Act now to avoid a tax penalty
To ensure you don’t need to pay a hefty tax bill come to the end of the year, it might be wise to make use of withholdings for estimated quarterly taxes or making payments – ideally both. This way, you can have a better handle on your taxes when tax season approaches.
This information is not intended as legal or tax advice. Cowdery Tax and its representatives does not offer legal or tax advice. We offer services for business bookkeeping, payroll, tax payments, and personal tax filings. We share information that is publicly available. Tax laws may change with or without notice that may alter or change the information contained in this publication.