Do You Pay Estimated Taxes?

September 15th is looming on the horizon. For most people, that date is relatively meaningless. For those of us who work from home with a home business, or who have some sort of side business, though, September 15th marks the paying of quarterly taxes.

When you work from home, chances are that you have to pay estimated taxes. Cash Money Life offers a very succinct look at who should be paying estimated taxes:

You must pay estimated tax if both of the following apply:

1. You expect to owe at least $1,000 in taxes after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of;
   • 90% of your current year tax liability, or
   • 100% of the tax shown on your previous year’s tax return.

In other words, the amount of estimated taxes you need to pay to avoid penalties is the smaller of 90% of what you will owe this year, or at least 100% of what you owed last year (110% for high income earners).

I have to admit that I don’t mind paying estimated taxes. It breaks things down so that I’m not faced with a massive tax bill at once. To further ease the situation, I actually figure out how much I pay each month. Then I put that money aside until it’s time to make my quarterly estimated tax payment.

You can figure your own estimated taxes, easily, by taking last year’s obligation and dividing it be four. Then you send in your payment with IRS Form 1040-ES. If you have an accountant or some other professional prepare your taxes, it’s even easier, since they can do the math stuff and issue you four pre-filled-out payment tickets to send in with your tax payment.