Estimated Tax Payments (ETP) are just around the corner and before you write that check, you may want to take a second look at the amount you pay. The Tax Cuts and Jobs Act of 2017 changed the way most taxpayers calculate their taxes. The changes not only affected taxpayers who are W2, but also those who do not have their income subject to withholdings. This can include small business owners and self-employed individuals.
The Tax Cuts and Jobs act revised tax rates, tax brackets and changed several key tax deductions that could affect taxpayers. This included increasing the standard deduction, while also removing the personal exemption. Due to these changes, you may need to either lower or increase the amount of tax you pay each quarter through estimated tax payments.
Estimated tax payments are a method of paying the tax on income that is not subject to withholding tax and can include income from self-employment, business earnings, interest, rent, or other sources. The IRS requires these payments to be made quarterly. If you underpay your estimated tax payments, you will end up having to write a bigger check to the IRS when you file your tax return. If you overpay, you will receive the excess amount as a tax refund once you file. If this is your first time making an estimated tax payment or you aren’t sure if this applies to you, the process is simple. You can learn more about Estimated Tax Payments here.
The IRS is waving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year. This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect all the changes created by the Tax Cuts and Jobs Act. The IRS is willing to waive the penalty for taxpayers who paid at least 85% of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual threshold is 90% to avoid the penalty.
If you need help figuring out if you owe ETPs or need help just paying for taxes in general, Polston Tax can help. Our team of tax attorneys and tax accountants know the ins and outs of the IRS and can help relieve the stress of owing taxes. Call us today at 844-841-9857 or click below to schedule a free consultation.