There’s another sneaky tax deadline on April 18. How to avoid a penalty
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There are only one week remaining to file your federal taxes. However, you may forget another important deadline. This is the due date to make estimated quarterly tax payments.
Pay out by April 18, if your income comes from self-employment or a small company, gig economy work, investments or any other source.
Pay if you are likely to owe more than $1,000 in taxes by 2022 according to the IRS. The estimated payment may be reduced or eliminated.
Bryan Hasling (certified financial planner), is a partner in Lodestar Private Asset Management, Alamo. He stated that everyone must pay taxes. The IRS prefers you to pay taxes throughout the year, rather than waiting for the end.
You can make your quarterly estimated tax payments the fastest and easiest way is to do it online IRS DirectPay or sending money through your IRS online account. There are however other options. listed at the IRS online payments webpage.
The late payment penalty is 0.5% of your balance due, for each month after the due date, up to 25%.
You can avoid estimated taxes if your employer withholds money each paycheck. However, you may be able to use the withholding estimator toolMake sure you are getting enough from your employer.
If your adjusted gross income exceeds $150,000, you can save penalties and pay 90% of 2022 taxes. You will need to pay 110% of the 2021 bill for earnings above $150,000
To see if your income is similar to the previous year, check your 2021 returns for tax liabilities and divide this number into four quarterly installments.
There are other scenarios where estimated taxes payments may be required. selling a property, cashing out investments — including cryptocurrency — or taking money from inherited retirement accounts, said Olga Espiritu, a CFP and president of Tree Of Life Wealth Advisory Group in Cooper City, Florida.
“These are not things people deal with all year. They might surprise you,” she stated.
There may be situations where filers deliberately skip the estimated payment, even if they have to pay the late fee. This could happen because the filers don’t possess the cash or want not drain their savings.
He stated that “Independent contractors frequently get paid at completion of large projects.” And those timelines could not align with quarterly schedules provided by the IRS.
Hasling stated that the decision to pay estimated taxes may not be about whether there is a penalty or about cash flow.