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Frequently Asked Tax Questions And Answers
Keyword: Quarterly Estimated Tax Payments
1.1 IRS Procedures: General Procedural Questions
I'm concerned because my check payment to the IRS has not been cashed
yet. What should I do?
You can call (800) 829-1040 and ask an IRS representative if the payment
has been credited to your account. If it has not and the check has not cleared
your financial institution, you may choose to place a stop-payment on the
original check and send another payment.
4.3 Interest/Dividends/Other Types of Income: 1099–MISC, Independent Contractors, and Self-employed
What, if any, quarterly forms must I file to report income as an
independent contractor?
There are no quarterly income reporting requirements for Federal income
tax purposes. However, because you will have no withholding taken from your
income, you may need to make quarterly estimated tax payments. You use Form 1040-ES (PDF), Estimated Tax for Individuals.
You need to be aware that there may be state and local requirements for
estimated tax payments. You can start looking for information at How
to Contact Us. You may want to go to your state's individual Web site
for additional information. To access the state you need go to our Alphabetical
State Index.
References:
I made several thousand dollars moonlighting as an independent contractor.
What taxes do I need to pay?
You are responsible for Federal income tax and self-employment taxes on
your income as an independent contractor. Self-employment taxes are your contributions
to Social Security and Medicare. Your self-employment income and expenses
will be reported on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also
need to use Form 1040, Schedule SE (PDF), Self-Employment
Tax, to compute and report your social security and Medicare tax, if
you had net earnings from self-employment of $400 or more. Since there is
no withholding on your self-employment income, you may need to make quarterly
estimated tax payments. This is done using a Form 1040-ES (PDF), Estimated Tax for Individuals.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Publication 334, Tax Guide for Small Business
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040-ES (PDF), Estimated
Tax for Individuals
- Tax Topic 355, Estimated Tax
- Tax Information for
Business
- Publication 505,Tax Withholding and Estimated Tax
9.1 Estimated Tax: Businesses
Estimated quarterly income taxes for a corporation were not paid. What is
the penalty amount? Is there any way to reduce the penalty?
If the corporation does not pay a required installment of estimated tax by its
due date, it may be subject to a penalty. The penalty is figured separately for each
installment due date. The corporation may owe a penalty for an earlier due date, even
if it paid enough tax later to make up the underpayment. This is true even if the
corporation is due a refund when its return is filed.
Use Form 2220 (PDF), Underpayment of Estimated Tax
by Corporations, to determine if a corporation is subject to the penalty for
underpayment of estimated tax and, if so, the amount of the penalty.
If the corporation is charged a penalty, the amount of the penalty depends on the
following three factors:
The amount of the underpayment.
The period during which the underpayment was due and unpaid.
An interest rate that is published quarterly by the IRS in the Internal Revenue
Bulletin.
The penalty may be waived by IRS on a case-by-case basis if the failure to make
estimated payments was caused by a casualty, disaster, or other unusual circumstance.
For more information, refer to Publication 542 , Corporations and
the
Instructions for Form 2220
References:
Is an S-Corporation required to pay quarterly estimated tax?
Generally, the corporation must make estimated tax payments for the following taxes
if the total of these taxes is $500 or more:
the tax on certain capital gains,
the tax on built-in gains,
the excess net passive income tax, and
the investment credit recapture tax.
For more information regarding estimated tax, refer to
Instructions for Form 1120S, U.S. Income Tax Return for an S Corporation, page 5 and Publication 542, Corporations, page 4.
References:
How do partnerships file and pay quarterly estimated tax payments.
Partnerships file Form 1065 (PDF), U.S. Partnership
Return of Income, to report income and expenses. The partnership passes the information
to the individual partners on Schedule K-1, Form 1065. The partners report the information
and pay any taxes due on Form 1040. Because partners are not employees of the partnership,
no withholding is taken out of their distributions to pay the income and self-employment
taxes on their Forms 1040. The partners may need to pay Estimated Tax Payments using
Form 1040-ES.
Refer to
Instructions for Form 1065, U.S. Partnership Return
of Income and Publication 505, Tax Withholding and Estimated Tax for
additional information.
References:
9.3 Estimated Tax: Individuals
How do I know if I have to file quarterly individual estimated tax payments?
Estimated tax payments can be used to pay Federal income tax, self-employment tax,
and household employment tax. To estimate if you need to pay tax on income not subject
to withholding or on other income from which not enough tax is withheld, you need
to calculate if the total tax you'll owe on your annual income tax return will be
covered by the amount of tax you have already had either:
withheld from wages and other payments, or
paid in earlier estimated payments for the year, or
credited to your account from adjustments or overpayments to previously filed
returns.
Generally, you should make estimated tax payments if you will owe tax of $1,000
or more, after withholding and credits, and the total amount of tax withheld and your
credits will be less than the smaller of:
90% of the tax to be shown on your current tax return, or
100% of the tax shown on your prior year's tax return, if your prior year's tax
return covered all 12 months of the year. However, if your prior year's adjusted gross
income exceeded $150,000, or $75,000 if you filed a separate return from your spouse,
then you must pay 110% instead of 100% of last year's tax. (Note: the percentages
change depending on the tax year. Refer to Publication 505, Tax Withholding
and Estimated Tax.)
Estimated tax requirements are different for farmers and fishermen. Publication 505, Tax
Withholding and Estimated Tax, provides more information about these special
estimated tax rules and about estimated tax in general. Get Form 1040-ES (PDF), Estimated Tax for Individuals, to help you figure your estimated
tax liability for 2004.
References:
Are all the quarterly estimated tax payments the same amount?
Normally, you determine your tax at the first of the year and divide by 4 but this
can change as your income may change for a certain quarter. If your income fluctuates
during the year, you should complete the 2004 Annualized Estimated Tax Worksheet in Publication 505, Tax Withholding and Estimated Tax. The worksheet annualizes your
tax at the end of each period based on a reasonable estimate of your income, deductions,
and other items relating to events that occurred since the beginning of the tax year
through the end of the period. Use the result you figure on line 25d of 2004 Annualized
Estimated Tax Worksheet in Publication 505 to make your estimated tax payments and
complete your payment-vouchers.
References:
Do self-employment taxes need to be paid quarterly or yearly?
Self-employment tax is paid by making quarterly estimated tax payments which include
both income tax and social security tax.
References:
When are the quarterly estimated tax returns due?
Your first estimated tax payment is usually due the 15th of April. You may pay
the entire year's estimated tax at that time, or you may pay your estimated tax in
four payments. The four payments are due April 15th, June 15th, September 15, and
January 15th of the following year.
If the due date for making an estimated tax payment falls on a Saturday, Sunday,
or legal holiday, the payment will be on time if you make it on the next day that
is not a Saturday, Sunday, or legal holiday. For example, a payment due Saturday,
January 15, 2005 will be on time if you make it by Tuesday January 18, 2005. Note:
Monday January 17, 2005 is a legal holiday.
References:
Can I make my quarterly individual estimated tax payments by credit card?
You can generally pay part or all of your estimated tax by using a credit card
(American Express Card®, DiscoverCard®, MasterCard®, or Visa® card).
Payments can be made by phone or Internet. There are two credit card processors
(also referred to as service providers), which offer this service. Service providers
charge you a convenience fee for the service.
References:
I'm concerned because my check payment to the IRS has not been cashed yet.
What should I do?
You may call 1-800-829-1040 and ask an IRS representative if the payment has been
credited to your account. If it has not, you may choose to place a stop-payment on
the original check and reissue the payment.
9.4 Estimated Tax: Large Gains, Lump-sum Distributions, etc.
If I anticipate a sizable capital gain on the sale of an investment during
the year, do I need to make a quarterly estimated tax payment during the tax year?
If you first receive income subject to estimated tax during a period other than
the first quarter, you must make your first payment by the due date for the period
the income is received. You can pay your entire estimated tax by the due date for
the period the income is received, or you can pay it in installments by the due date
for that period and the due dates for the remaining periods.
If you are making estimated tax payments you can increase your quarterly estimated
tax payments or increase your Federal income tax withholding to cover the tax liability.
If you have the proper amount withheld you may not be required to make estimated tax
payments nor have to file Form 2210 (PDF), Underpayment
of Estimated Tax by Individuals, Estates and Trusts, with your tax return (as
you would if you just increased the remaining estimated tax payments). If you wait
and make increased estimated tax payment in the later quarters, you would have to
file Form 2210 with your tax return because we do not know when you received the income.
Since you really did not receive the income evenly throughout the year, you have to
tell us when the income was received by filing Form 2210.
References:
If I sell stock at a gain, do I pay estimated taxes on the entire profit
when the next quarterly payment is due or can I divide it by the number of quarterly
payments left for the year and make these equal payments at each subsequent quarter?
If you first receive income subject to estimated tax during a period other than
the first quarter, you must make your first payment by the due date for the period
the income is received. You can pay your entire estimated tax by the due date for
the period the income is received, or you can pay it in installments by the due date
for that period and the due dates for the remaining periods.
References:
Since mutual fund distributions are typically made in the last quarter of
a calendar year, is it sufficient to pay income taxes on the distributions by January
15th, or am I required to make quarterly estimated tax payments?
You do not have to make estimated tax payments until you receive income on which
you will owe the tax. Since your mutual fund distributions are not made until the
last quarter of the year, you need only make an estimated tax payment for the last
quarter by January 15th. However, even if you make an adequate payment of tax by January
15th, you should also complete Form 2210 (PDF), Underpayment
of Estimated Tax by Individuals, Estates and Trusts, and attach it to your income
tax return when you file, you may be assessed an estimated tax penalty by the IRS
service center when your return is processed, otherwise because estimated tax payments
are normally made in four equal installments and the IRS will not know your liability
occurred in the fourth quarter. You should check the box on the front page of the
Form 2210 to select the Annualized Income Installment method, and then complete Schedule
AI on page 3. When you compute the penalty on page 2 of that form using the numbers
from Schedule AI, your penalty will be $0 if you made an adequate payment. Even if
you did not make the January 15th payment, or made an inadequate payment, the annualized
income method on Form 2210 may significantly reduce the estimated tax penalty.
References:
- Publication 505, Tax Withholding and Estimated Tax
- Form 2210 (PDF), Underpayment of Estimated
Tax by Individuals, Estates and Trusts
12.2 Small Business/Self-Employed/Other Business : Form 1099–MISC & Independent Contractors
What, if any, quarterly forms must I file to report income as an
independent contractor?
There are no quarterly income reporting requirements for Federal income
tax purposes. However, because you will have no Federal Income Tax withheld
from your income, you may need to make quarterly estimated tax payments. You
use Form 1040-ES (PDF), Estimated
Tax for Individuals, for this purpose.
You may be subject to a penalty for underpaying your estimated tax installments.
For more information refer to Publication 505, Tax Withholding and Estimated
Tax. You need to be aware that there may also be state and local quarterly
reporting requirements. You can start looking for information at How
to Contact Us. You may want to go to your state's individual web site
for additional information. To access the state you need to direct your question
to, please go to our Alphabetical
State Index.
References:
12.8 Small Business/Self-Employed/Other Business : Schedule C & Schedule SE
I am self-employed. How do I report my income and how do I pay Medicare
and social security taxes?
Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.
Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.
As a self-employed person, you pay your Medicare and social security taxes
the same way you pay your income taxes. If you expect to owe less than $1,000
in total taxes, you can pay them when you file your income tax return. If
you expect to owe $1,000 or more in total taxes, you will need to make estimated
tax payments. These payments are made quarterly using Form 1040-ES (PDF), Estimated Tax for Individuals. You will need to
figure these taxes at the beginning of the year. To learn about figuring and
making estimated tax payments, please refer to Publication 505, Tax
Withholding and Estimated Tax.
References:
12.9 Small Business/Self-Employed/Other Business : Starting or Ending a Business
If you start your own business and send in your quarterly estimated
income taxes, must you also file a personal income tax return at the end of
the year?
If you have $400 or more of net profit from your business, you will have
to file a Form 1040 with a Form 1040, Schedule C (PDF), Profit
and Loss from Business (Sole Proprietorship) or Form 1040, Schedule C-EZ (PDF), Net Profit form Business and Form 1040, Schedule SE (PDF), Self-employment Tax .
References:
I just started a small business and want to know if I have to file
my income taxes quarterly or at the end of the year?
The Federal Income Tax return is filed annually. As a self-employed individual,
if after deducting withholding and credits you expect to owe $1,000.00 at
the end of the year, you should make estimated tax payments on a quarterly
basis. Form 1040-ES (PDF) , Estimated Tax
for Individuals , will assist you in determining if estimated tax payment
are due and how they are paid.
When you file the income tax return at the end of the year, you include
the income from the business on the return. The forms to be filed are Form 1040 (PDF), U.S. Individual Income Tax Return , Form 1040, Schedule C (PDF), Profit or Loss from Business Form 1040, Schedule SE (PDF), Self-Employment Tax .
If estimated tax payments where made during the year, they will be claimed
on the individual income tax return as payments. See the Form 1040, Line 62.
References:
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