Estimated filing scheduleTo meet the pay-taxes-as-you-earn goal, the IRS has set up an estimated tax timetable calling for the filing of a 1040-ES voucher four times a year. If you prefer, you now can pay electronically with a credit card or by enrolling in the tax agency's Electronic Federal Tax Payment System, or EFTPS.
Although the payments are commonly called quarterly, they don't coincide with the calendar quarters.
Estimated filing schedule
|April 15||Jan. 1 through March 31|
|June 15||April 1 through May 31|
|Sept. 15||June 1 through Aug. 31|
|Jan. 15||Sept. 1 through Dec. 31|
|If the due date falls on a Saturday, Sunday or legal holiday, you have until the next business day to make the payment. The filing is considered on time if it is postmarked by the due date.|
The IRS prefers that you figure the total amount of estimated tax you'll owe in April, divide it by four and send in equal payments according to the schedule. There's a work sheet with the Form 1040-ES package to do exactly that.
Meeting the IRS requirementEva Rosenberg, an enrolled agent and the Web's TaxMama, offers an easier alternative to the IRS paperwork if you expect your taxable income to be the same or higher than it was last year.
All you need is last year's tax return and statements showing current tax withholding.
Figuring estimated payments
|Look at Page 2 of your last 1040, specifically the "total tax" entry. Let's say it was:||$10,000|
|From that, deduct any withholding you expect to have from any sources (wages, unemployment). For this example, let's use:||$3,000|
|That gives you the total amount to be made up by estimated tax payments:||$7,000|
|Divide the result by 4, and that's what you'd pay each IRS quarter in this scenario:||$1,750|
Rosenberg's method works even if you expect to owe substantially more in taxes this year than you did the previous one. This is because the IRS considers estimated taxpayers compliant as long as they pay either 90 percent of their eventual tax bill or a "safe harbor" payment based on a percentage of the tax owed the previous year.
Many taxpayers opt for the safe harbor payment of 100 percent of their prior year's tax bill because it gives them a specific number to work with. Even better, it protects them from penalties and interest regardless of how high their upcoming final tax bill goes.
Some safe tax harbors tougher to navigateThe safe harbor is a little choppier if you make a lot of money, however.
If your previous year's adjusted gross income was more than $150,000 (for married couples filing jointly and single taxpayers; $75,000 for married taxpayers filing separately), and you want to base your estimated tax payment on the prior year's amount, you'll have a higher safe harbor percentage to meet.
For 2010 estimated payments, the safe harbor target for a high-earning taxpayer is 110 percent of the filer's 2009 tax bill. That means, if your adjusted gross income on that previous return was $150,000 and you ended up with a $30,000 tax bill, the IRS expects you to pay $33,000 -- $30,000 plus 10 percent -- in 2009 via estimated and withholding taxes to guarantee you don't encounter additional IRS charges in penalties and interest.
"With both (partners) in a couple earning or people holding multiple jobs, the salary cap is not as out of reach as it may seem, especially if they had a good investment or sold a piece of investment property during the year, too," says Durand.