If you are self-employed, an independent contractor, or expect to have income above and beyond W-2 wages, you may need to send estimated tax payments to the Internal Revenue Service (IRS) and Franchise Tax Board (FTB).
Your payments should be based on the estimated amount of taxes you expect to owe for the entire year. You can pay these in installments throughout the year. These installments are generally due on April 15, June 15, September 15 and January 15. For California, you will need to pay 30% of the total estimated tax liability in April, 40% in June and the remaining 30% in January.
For the IRS, as long as you pay 90% of your current year’s tax liability or 110% of your prior year’s tax liability then you will avoid any penalties.
If you believe you may owe taxes in excess of W-2 withholdings for the current year, you should be paying estimates. If you are unsure of how much you should be paying in estimates, you should contact your tax preparer to run a projection to determine an estimated tax liability based on your estimated annual income, any credits you may be eligible for and any itemized deductions you may be taking.
If you have any questions or concerns regarding the filing of a return or paying estimated tax, don’t hesitated to contact me at email@example.com.