This week is your final opportunity to avoid a tax fine if you haven’t been giving the IRS a portion of your income recently.
According to the government, the due date for third-quarter anticipated taxes is September 15. This deadline pertains to income from gig economy jobs, small enterprises, investments, self-employment, and more.
“It’s a pay-as-you-go system,” stated John Loyd, owner of The Wealth Planner in Fort Worth, Texas, who is a qualified financial planner. “A lot of folks don’t find out until they file their tax return and they get a very nasty surprise.”
While many employees deduct taxes from each paycheck, others are required to pay four times a year. The late payment fee is 0.5% of your outstanding total, up to a maximum of 25%, for each month after the due date.
You have several options for sending money to the IRS, including IRS Direct Pay, your online IRS account, and others that are listed on the IRS payments page. Experts advise taxpayers to pay online, though.
“I would much rather pay electronically and have a record of it,” CFP and CPA JoAnn May, who established Forest Asset Management in Berwyn, Illinois, claimed as much. She pointed out that certain filers might also owe projected state tax payments.
Selling stocks, receiving a bonus, or taking withdrawals from a retirement account without withholdings are some more situations that can need projected tax payments, according to Loyd.
How to stay away from federal tax fines
If your adjusted gross income is $150,000 or less, you can avoid incurring federal penalties by paying the lesser of 90% of your 2022 taxes or 100% of your 2021 bill over the course of the year. (If you make more than $150,000, you’ll need 110% of your 2021 bill.)
“As long as you pay that amount into the system, your income could quadruple and it does not matter,” Loyd said. “You won’t have an estimated tax penalty.”
Of course, you’ll still need to save up enough cash when you pay your taxes in April to cover all levies for the year.
Why some people don’t pay their quarterly estimated taxes
Despite the late cost, some filers may purposefully skip estimated payments, experts say, even if doing so may help them avoid penalties.
“The word penalty scares people,” CFP and CPA Marianela Collado from Tobias Financial Advisors in Plantation, Florida, made the statement. “But it’s nothing more than the IRS charging you interest.”
She said that in some circumstances, the choice to make anticipated payments is dependent on the cash flow of the business owner or their capacity to create more money by investing the money elsewhere.
However, Collado continued, “not everyone has the discipline” to save the money for quarterly taxes as well as the penalty.