Taxpayers Can Eliminate April Surprise with Estimated Tax Payments

Each year during tax season, there is a group of taxpayers who choose to be surprised at how much tax liability they have on their earned income. This group often includes self-employed taxpayers (photographers, freelancers, consultants, etc.) who do not have an employer withholding taxes from their paycheck, and therefore, may have no federal taxes paid by Tax Day.

One way taxpayers can avoid the Tax Day surprise is by making estimated tax payments. Estimated tax payments are payments sent to the IRS on a quarterly basis throughout the year. The benefit of these payments is that taxpayers can better plan their budget and won’t have to worry about coming up with a large sum of funds at once. Also, if enough tax is not paid in a timely manner through withholding or estimated payments, taxpayers may be subject to an underpayment penalty.

To get a better idea of how much each payment should be, as well as the amount of total tax liability, the National Association of Tax Professionals recommends working with a qualified tax preparer, as there are many nuances self-employed taxpayers may not realize when it comes time to file their returns and make estimated payments, including deductible items and various credits. There are also payment deadlines taxpayers must meet in order to avoid late fees.