Paying Quarterly Income Taxes

Here in the last few weeks I have been asked about paying quarterly taxes on your work at home income quite a bit. So, I thought I would throw together a quick tidbit of information regarding this.

Hope it helps and as always, let me know if you have any questions!

The Low Down on Self Employed Quaterly Taxes

Do I Have to Pay My Taxes Quarterly?

If you had a tax liability for the prior year, you may have to pay estimated tax for 2006. The general rule is that you are required to pay your income taxes quarterly if both of these apply.

1. You expect to owe at least $1000 in tax; after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of;
o 90% of the tax to be shown on your current tax return, or
o 100% of the taxes shown on your previous year’s tax return. Your previous year tax return must cover all 12 months.

If you are employed in a job that pays you a salary or wages (you have taxes taken out of this pay), you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings. To do this, file a new Form W-4 with your employer. You must be sure that you are taking enough out to cover your estimated tax amount each quarter.

You are not required to pay estimated tax if you meet all of the following conditions.
1. You have no tax liability for the previous year
2. You were a US citizen or resident for the whole year
3. Your previous tax year covered a 12 month period

So, how do you know if you have tax liability or not? If you had zero tax due or did not need to file a tax return then last year, then you do not have tax liability.

How Do I Determine How Much I Owe?

To figure the amount of your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.
When figuring your estimated tax, you will find it helpful to use your income, deductions, and credits for the previous year as a starting point. Use last year’s tax return as a guide. Use Form 1040-ES to figure your actual estimated tax based on the .

Remember to take into consideration any changes in your own situation. Here are a few things that could affect your estimated tax amounts:

1. Income Increase or Decrease
2. The addition or subtraction of dependents. Did you give birth to a child this year?
3. Marriage or Divorce

Also, don’t forget to check any tax law changes that may have occurred since last year.

I suggest that everyone file the old fashioned way, by hand, the first time so that you get the feel of what the amounts are and how the tax is calculated. After that, you can use your choice of software that computes your tax amount for you.

When Do I Make Payments?

The year is divided into four payment periods for estimated taxes. Keep in mind that if you do not pay enough tax by the due date, you may be charged a penalty. This is the case even if you are due a refund when you file your income tax return. The list below shows the periods and the due dates for income received during that specific period. These dates are for the tax year 2006!

For the months of: Jan 1- March 31
Pay Taxes Due by: April 17

For the months of: April 1-May 31
Pay Taxes Due by: June 15

For the months of:June 1-August 31
Pay Taxes Due by: September 15

For the months of: September 1-December 31
Pay Taxes Due by: January 16 the next year