If you’re not the early bird type, you may have procrastinated on filing those taxes. Here’s what to do if you think you’re going to incur late-payment penalties.
First, have a pretty firm figure in mind for what taxes you may owe, both to the IRS and to your state or municipality. The IRS is a lot more forgiving towards procrastinators when they’ve already remitted estimated payments. The nation’s taxing agency cares about cash flow, because we all know they need lots of moolah to run the country.
So even if those tax collectors are not near and dear to our hearts, we do need to feed them regular servings of our hard-earned dough in the form of estimated tax payments. When we do, they’re much more likely to play nice, should we run into a financial pinch and miss a payment due to circumstances beyond our control.
You’ll know soon enough when they don’t play nice, because you’ll get those scary letters, which warn of imminent seizure of property. No taxpayer wants to go there and frankly few IRS agents want the trauma that comes from a Snidely Whiplash approach.
The safest approach is to calculate as accurately as possible your total tax liability for the year. In general terms, if you make estimate payments in an amount equal to or exceeding your previous year’s tax liability, you will likely avoid underpayment penalties.
If you have a small business and also work full time for an employer, it’s a good idea to ensure you’re withholding an adequate amount through payroll withholding or remitting estimated payments. Many self-employed taxpayers may need to adjust the amount of their estimated payments, depending upon the amount of income received per quarter of the calendar year. This IRS withholding calculator will help you remit the correct amount of estimated payments in 2014 to avoid incurring a penalty.