Tax man cometh four extra times a year for some
By Kay Bell • Bankrate.com

The new year is here, but if you pay estimated taxes you've got one more filing task before you can close out 2006. Your final estimated tax voucher for last year is due Tuesday, Jan. 16.

These extra tax filings are due the 15th (unless it's a weekend or holiday) of each January, April, June and September. This first payment of 2007, and which is due a day later than usual since the 15th is Martin Luther King Day, is for money you earned, but didn't have income tax withheld from, in October, November and December.

Estimated tax payments are the bane of an increasing number of Americans. They are expected from people who make money on investments, operate their own businesses or get any extra cash that has not yet been taxed.

Time-consuming? Yes, nobody really likes doing taxes more than once a year.

Confusing? Sometimes, especially if you're earning income from several different sources at different times.

Necessary? You bet, or you could end up owing Uncle Sam penalties and interest.

The reason behind estimated taxes
Most people meet their tax obligations through paycheck withholding.

But if you're self-employed, either as your main job or as a sideline, you must get the taxes on this money to the IRS yourself by filing Form 1040-ES. Estimated taxes also are due on interest and dividends, profits from investment sales, alimony, rental income and prizes or awards.

The estimated tax system was designed to ensure that taxpayers who have a lot of nonwithholding income pay into the tax system regularly. This evens things up between these taxpayers and wage earners who lose a chunk of money each paycheck to taxes.

The problem, says Linda Durand, a CPA with McQuade Brennan in Washington, D.C., is that too many folks who have a windfall get excited about the extra cash and immediately spend the proceeds without any thought to the tax implications. Even people who earn a steady stream of money that isn't taxed upfront put off filing estimated taxes because they want or need the cash now. They figure they'll make it right with Uncle Sam come April 15.

That's not a good idea. If you end up owing $1,000 or more in April, you might have underpaid your tax bill. That would open the door for the IRS to add penalties and interest for not paying tax on your earnings as you got them.