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How To Avoid A Penalty For 4th Quarter Estimated Tax Payments?

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How To Avoid A Penalty For 4th Quarter Estimated Tax Payments?

Tax deadlines can provoke a lot of anxiety, and for good reason. Not paying your self-employment taxes on time could result with the IRS slapping you with a penalty. Fortunately, there are ways you can avoid this outcome. As a W-2 employee, your taxes are withheld from your paycheck, making taxes much more manageable. Self-employed taxpayers are responsible for making quarterly estimated tax payments four times a year. That’s a lot of tax deadlines to keep track of. If you miss the deadline for the 4th quarter payment, it’s possible to get a tax penalty, and you’ll need to act fast.
Key takeaways:
  • Estimated taxes need to be paid for any income not subject to withholding.
  • There are penalties for not adhering to the IRS’s estimated tax rules.
  • If you missed the deadline for the 4th quarter payment, it’s still possible to avoid a penalty.

Table of contents

What are estimated taxes?...Read more

Who pays estimated taxes?...Read more

When are estimated tax payments due in 2023?...Read more

How to pay quarterly taxes?...Read more

How to avoid a 4th quarter penalty?...Read more

Waived underpayment penalties...Read more

Making the full payment at once...Read more

How to calculate quarterly taxes?...Read more

What are estimated taxes?

Quarterly or estimated taxes are paid by anyone who doesn’t have their federal income taxes withheld from their paycheck. The IRS requires that anyone who has self-employed income or any other income not subject to withholding must pay taxes quarterly, or four times a year. It’s an estimate of the taxes you’ll end up owing for that quarter, which you'll know at the end of the year when you know what your income was for the entire year.
Infographic entitled Types of Income Not Subject to Withholding, showing self-employment income, dividends, rent, interest, alimony and capital gains.

Who pays estimated taxes?

Taxes are an inescapable part of life, and every American earning an income is required to report their income to the IRS on Form 1040, whether you're a self-employed individual or a W-2 employee. But not everyone needs to pay estimated taxes. According to the IRS, estimated taxes are required to be paid by:
  • Gig workers
  • Self-employed individuals
  • Small business owners
  • Freelancers
  • 1099 workers
  • Independent contractors
If one of these job titles applies to you, and you expect to owe $1,000 or more in taxes during the year, chances are you’ll need to pay estimated taxes, which you'll enter on the IRS Form 1040-ES.

When are estimated tax payments due in 2023?

When it comes to tax filing for estimated taxes, there are a few important dates to keep in mind.
Infographic entitled 2023 Estimated Tax Payment Deadlines, showing January 17, 2023,  April 18, 2023, June 15, 2023, September 15, 2023 and January 16, 2024.
If you file your income tax return by January 31, 2023 and submit your entire owed balance, you won’t need to pay the January 17 payment.

How to pay quarterly taxes?

Tax forms can be lengthy and time-consuming. Traditionally, the easiest way to make an estimated tax payment was to submit a paper copy in the mail to the IRS. Instead of opting for snail mail, you can now pay quarterly taxes online through the IRS website.

How to avoid a 4th quarter penalty?

You might end up with a penalty from the IRS if you if you have a habit of underpaying your IRS estimated tax payments. You’ll owe 0.5% of your unpaid balance per month, up to 25%. As if that's not harsh enough, you’ll also accrue interest on that amount. Don’t lose hope, though. There’s a way you can bypass the penalty altogether with the estimated safe harbor rule. You can pay 100% of your 2021 taxes, if your adjusted gross income is less than $150,000, or 90% of your taxes for 2022. Whichever amount yields a smaller payment is the route you should take. The safe harbor rule doesn’t guarantee you won’t need to pay more taxes for 2022. It’s best to set money aside from your income to cover federal income tax and state taxes. This way if you do end up owing more taxes, you’re prepared to pay. If you do end up being penalized, you can use a tax penalty calculator to help you total your penalties.

Waived underpayment penalties

An underpayment penalty can be waived under certain circumstances, including:
  • You’re retired, and you reached 62 years of age during the current or previous tax year.
  • You became disabled during the tax year.
  • The payment was missed due to a natural disaster or unusual circumstance.
  • You didn’t owe any taxes for the previous year and were a US citizen during that time.
  • There was a reasonable cause for missing the penalty and not for neglecting to pay.

Making the full payment at once

It would seem to make things a lot easier if you could just make the estimated tax payment to the IRS all at once. Unfortunately, the IRS doesn’t agree, and you can’t make the payment all at once. You’ll need to make estimated tax payments each quarter.

How to calculate quarterly taxes?

Calculating your quarterly estimated tax payment can feel overwhelming, especially with the fear of a penalty looming over your head. There are a few ways to calculate how much you’ll owe. One place to start is by using a tax bracket calculator to see which tax bracket you belong to. Method 1 The first option is a good choice if you have consistent self-employment income, or you’re confident in how much income you’ll earn for the year. Estimate how much you think you’ll owe for the year and send one-fourth of it to the IRS. For example, if you estimate you’ll owe $25,000 for the year from your dog walking business, you would end up paying $6,250 each quarter Method 2 The second method is meant for those with varying incomes who aren't sure how much money they will bring in each quarter. If you work as a landscaper, for example, your income might be higher in the warmer months in comparison to the colder months, making it hard to predict how much you’ll earn. You’ll estimate your yearly tax obligation based on your previous year's earnings. At the end of each quarter, you’ll analyze your current tax so far based on your income, tax write-offs and tax credits. A quarterly tax calculator can help with this, and the IRS has a worksheet you can use, too. Regardless of the method you use, there are a few options when it comes to making a payment to the IRS.
Infographic entitled Options for Making IRS Payments, showing cash, same-day wire, check, electronic Federal Tax Payment System and electronic funds withdrawal.
Once you’ve decided on your payment method, consult a CPA, like the dedicated CPA team at FlyFin, to be sure you’ve taken advantage of all the possible deductions and credits you’re eligible to receive. FlyFin’s A.I. guarantees you’ll never miss a tax deduction and will save more in taxes. Expert CPAs also review your returns and offer unlimited support on 1099 employee taxes all year round.

Tax Write-Offs

Self-employed individuals can use tax write-offs to lower taxes. These itemized deductions should be reported on Schedule C.

How Long Should You keep Tax Returns

American taxpayers need to keep tax records for at least three years. This may change depending on which state you live and the type of business you run.

Tips For E-Filing 1099 Taxes

Filing taxes is a complicated process, but following a few simple but crucial steps can help you be prepared to e-file your 1099 taxes.

Top 5 things to remember about 1099 tax form

Remember these five important things about 1099 taxes, if you're a self-employed individual, freelancer or independent contractor.

Filing Taxes Self Employed

Only FlyFin uses a unique combination of A.I. and CPAs to find every qualifying deduction for freelancers, self-employed individuals and independent contractors.

Deductions For Tax Savings

For freelancers, the most effective way to save on taxes is by taking advantage of tax credits and the many tax deductions they qualify for.

Top Ways To Save Taxes Using Write Offs

Looking to maximize your refund for the 2023 tax filing season? Check out our guide to the top 10 tax write-offs for W-2 employees, independent contractors, self-employed individuals, freelancers and small business owners.

How To Maximize Tax Refund

These tips and tricks can help you maximize your 2023 tax refunds and also help you understand how to minimize your tax liabilities in many more future tax seasons.

Claim Tax Deductions For Small Business

Small business tax deductions are the same as tax write-offs. You can claim a standard or itemized deduction based on your business expenses to decrease your taxes.

Self Employed Tax Filing

Self-employment tax forms like Schedule C and Schedule SE should be included with form 1040 when filing taxes.

How FlyFin Helps Claiming Tax Write Offs

Tax write offs are business expenses that are tax deductible. With FlyFin, you can easily claim itemized deductions and bring down your tax amount.

File Taxes With W2 and 1099

You can file a 1099 and W-2 together if you receive them in the same year. This can also lower your quarterly tax payments or get you a QBI deduction.

Tax Filing For Green Card Holders

Anyone who has a green card in the USA will need to pay taxes if they meet the IRS-set income threshold.

How To Deduct Stock Losses From Your Taxes

Capital loss deductions allow for taxpayers to write off stock market losses and pay less in taxes. The IRS allows you to deduct up to $3,000 per year.

How To File Back Taxes

Everything you need to know about how to file back taxes and claim tax refunds and credits before it's too late. The IRS lets you file back tax returns for up to six years.

How To File Patreon 1099 Taxes

Patreon creators can use FlyFin’s 1099 calculator to find business expenses they can write off on their tax forms.

Tax Write-Offs

Self-employed individuals can use tax write-offs to lower taxes. These itemized deductions should be reported on Schedule C.

How Long Should You keep Tax Returns

American taxpayers need to keep tax records for at least three years. This may change depending on which state you live and the type of business you run.

Tips For E-Filing 1099 Taxes

Filing taxes is a complicated process, but following a few simple but crucial steps can help you be prepared to e-file your 1099 taxes.

Top 5 things to remember about 1099 tax form

Remember these five important things about 1099 taxes, if you're a self-employed individual, freelancer or independent contractor.

What’s FlyFin?

FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. technology. Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple thousand dollars and a ton of time on your taxes. In addition, you can download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and money.
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