Are you paying your bills on time?
Written by Tiffany McBroom and Melanie Sikma
The United States has a “pay-as-you-go” tax system, meaning that you must pay income taxes (and Social Security and Medicare taxes, if applicable) to the IRS throughout the year as you earn income, whether or not it is withheld. . Estimated tax payments or both.
you suffer Estimation tax penalty If you please do not Pay enough to the IRS throughout the year.
The IRS will assess this nondeductible interest penalty on the amount you pay in the shortfall each quarter.of penalty rate be equivalent to Short-term interest rate plus 3% points.
Due to rising interest rates, The current penalty rate is 8%-Highest level in 17 years.and since then Not eligible for deductionthe net cost is probably much more than 8%.
If you are an employee and all taxes you owe are withheld by your employer, you don’t need to worry about this penalty.
However, if you are self-employed, there is no one to withhold taxes from your business income, so you have to worry about that. Similarly, you should be concerned if you receive income such as retirement benefits, dividends, interest, capital gains, rent, royalties, etc. that have no or insufficient withholding.
C corporations are also subject to underpayment of estimated tax payments.
Fortunately, avoiding this penalty is easy.
- All an individual taxpayer must do is (1) 90% of the total taxes owed this year, or (2) 100% of the total taxes paid in the previous year (for high-income taxpayers with adjusted gross income or higher) 110%). $150,000 or more ($75,000 for married couples filing separately).
- Corporations must pay 100% of the taxes listed on their current or previous year’s return (although large companies cannot use previous years).
Most individuals and companies equal Estimated quarterly tax payments to the IRS. The IRS applies penalties separately for each payment period. Therefore, increasing the estimated tax liability in a later period does not reduce the penalty in one period.this is true Even if there is a refund deadline When filing your tax return.
Some individuals and corporations may use alternative methods, such as the annualized income method, to calculate their estimated tax liability. However, alternative methods can be complex.
Tiffany McBroom and Melanie Sikma are a power-packed combo of sisters. They grew up listening to their father, mentor, and guide Byron talk about taxes and financial strategy with friends who owned businesses during camping trips. Byron has been a certified public accountant for over 30 years and is passionate about finding new solutions to help business owners save more money on their taxes. His passion for helping entrepreneurs realize their dreams led them both to join him in the same field. https://www.onestoptaxstrategists.com/
