I constantly get the question from people that are self- employed “Do I have to make estimated payments?” The answer is a resounding YES; unless you like paying penalties and interest. That’s right boys and girls penalties and interest. If you do not make estimated payments throughout the year you are considered underpaid. Therefore, you will pay an underpayment penalty and interest is tacked on as well. These calculations vary depending on your level of income.
When you are self-employed you rarely receive a traditional paycheck with withholding. If this is the case you should be working with a tax professional to calculate what you should be paying in on your earned income. The due dates for estimates are April 15th , June 15th , September 15th and January 15th . If you want to know what you owe, call us we will let you know!
Moving on to extensions. I had a handful of clients say to me this year “I will just go on extension.” When I asked if they truly knew what that meant I was met with either a blank stare or silence on the other end of the phone line. An extension for a tax return is an extension of time to file not pay. The IRS understands that you may not receive all of your tax information by the April 15th deadline but they expect to be paid by then. So going on extension because you can’t get your act together is not a valid reason for not paying your tax obligation. You need to again work with a tax professional to figure out our potential liability and pay that in with your extension. What if you don’t pay in with your extension and you owe when you file your tax return? That’s right you guessed it penalties and interest.
If you are allergic to penalties and interest give us a call and we will make sure to help keep you out of those situations.