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How To Avoid A Penalty For 4th Quarter Estimated Tax Payments?
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 2024?...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.
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
When are estimated tax payments due in 2024?
When it comes to tax filing for estimated taxes, there are a few important dates to keep in mind.
If you file your income tax return by Jan 31, 2025 and submit your entire owed balance, you won’t need to pay the January 15 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 2023 taxes, if your adjusted gross income is less than $150,000, or 90% of your taxes for 2024. 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 2023. 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.
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.
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.
Expert tax CPAs ensure 100%-accurate tax filing
A.I. finds every tax deduction, eliminating 95% of your work
On average users save $3,700
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