Income Tax Estimate
Ringing in the new year is one of the best annual events, but it's also followed by one of the least flattering times, tax season. No doubt this can be a stressful time for many, but just knowing what it will take to satisfy the IRS can reduce your anxiety.
Calculating your income tax estimate early is a great way to settle into your new year with knowledge of what your tax bill will be, instead of stressing over not knowing. Stress is overrated, don't do it!
Estimate Your Federal Income Taxes
An income tax estimate is based on many factors that include determining whether you are filing as a sole proprietor, partnership, S corporation shareholder or a self-employed individual. For Individuals, you should use IRS Form 1040-ES, to pay your estimated federal income tax payments.
information on filing for a sole proprietor, partnerships,
and S corporation shareholder, refer to
Publication 505, Tax Withholding and Estimated Tax form.
For those who are filing as a corporation you should use Form 1120-W, Estimated Tax for Corporations (PDF), to determine your estimated taxes due. For additional information on filing for a corporation, refer to Publication 542, Corporations.
How To Calculate Income Tax Estimates
To determine your
estimated income tax payments, you must calculate your
expected adjusted gross income, taxable income, tax
deductions and credits for the year you are estimating your
income taxes for.
Use your prior year's federal tax return as a guide for estimating taxes for the current year. You can use one of the free income tax estimate tools above or, the worksheet in IRS Form 1040-ES to figure your estimated tax amount due.
You do want to estimate your income tax payments as accurately as possible to avoid penalties and interest charges from the Internal Revenue Service.
Who is Required to Pay Estimated Tax
If you are a sole proprietor, partner, S corporation shareholder, or a self-employed individual, and you are expecting to owe federal income taxes in the amount of $1,000 or more, payments are due.
You will generally be required to make these income tax estimate payments quarterly throughout the year.
Who's Not Required To Pay Estimated Income Taxes
For anyone that
receives wages or a salary, you can avoid having to pay
estimated taxes by asking your employer to
withhold the proper amount of tax withholding from your
earnings. You can do this by submitting a corrected
(PDF) with your employer where you enter the additional
income tax estimate amount you want your employer to
You are not required to pay estimated tax payments for the current year if you meet all three of the following conditions.
- You had no tax liability for the prior tax year
- You were a legal U.S. citizen or resident for the entire tax year being filed.
Your prior full tax year covered a 12 month period and you did not have to file a federal income tax return.