Estimating and paying the Internal Revenue Service – United States Treasury and state income taxes
The first step in preparing income tax estimates is generally completing your tax return. However if your return is going on extension the first quarter payment for the current year is also due on April 15. In that case additional efforts would be applied and reviewed again once the return has been completed.
The second step would be to decide on whether to pay your income taxes based on the minimum to avoid an estimated income tax penalty or based on expected current year income. Paying the estimated tax penalty means you will pay more of the amount due towards the final due date of April 15, and is typically less than several hundred dollars. Perfection in estimated income tax payments is hard to achieve because the Internal Revenue Service gives you choices. A small estimated income tax penalty is not a huge concern. However completing your tax return in a timely manner is a good practice.
We can help you figure out your proper filing status and exemptions on your W-4. Higher income individuals that are married may still want to have their status as “married but withhold at the higher single rate” due to the effect of losing some benefits in dual income families from the graduated tax rates. The traditional zero exemptions will still get you the highest amount of withholding under any status so figuring the amount for line five of your W-4 is also important.
Yet many individuals send their estimated taxes by one of the other methods such as check, electronic withdrawal, Electronic Federal Tax Payment System, or right on www.IRS.GOV as a direct pay. So we can go over with you about your tax plans and prepare the payment coupons for you with convenient courtesy prepaid postage envelopes or schedule electronic withdrawals.
Estimating scenarios, capital gains, business and rental income
The estimating process may involve things such as expected business income and capital gains and losses from selling either real estate or securities. Or simple ones such as same as last year type of estimate or bumping up one thing or another such as retirement income. It may be convenient to have withholding on your social security payments when income levels go up the social security may become taxable.
So depending on the complexity we can prepare the estimate that is best for you. When paying by check it’s important to keep track of your payments to avoid payment confusion since there is a possibility if we prepare and estimated payment coupon that the check and envelope was not actually sent. Electronic payments are easier to keep track in this regard so when bringing your tax documents for your income tax preparation it’s always a good idea to go over the payments for the current year.
Estimating same as last year or different business income scenarios and clearing the self-employment tax threshold
One thing about estimating your income tax is also looking at whether you are paying self-employment tax. If you are self-employed, a single member LLC or involved in a partnership with pass through earned income you are probably familiar with paying into Social Security. The good news is this the majority of tax is only applicable to the first $110,000 of your income so after that there will be some relief. However this is per person limit so crossing this threshold will take careful planning and a good education.
Budgeting and Planning
We have an ability to help you calculate personal financial statements or create financial literacy by helping you with family budgets and calculating savings and buying a home in five year plan. We can break it down to monthly and annual analysis.
Most of our budgeting tends be geared to business planning so most home budgeting can be done relatively quickly. So if you have any budgets that you have a concern about please let us know and we can help you with your planning and ease your concerns.