January 15 is circled on the calendar because it is the final estimated tax due date

Next estimated tax deadline is January 15

If you’re self-employed and don’t have withholding from paychecks, you probably have to make estimated tax payments. These payments must be sent to the IRS on a quarterly basis. The fourth 2020 payment deadline for individuals is Friday, January 15, 2021. Even if you do have some withholding from paychecks or payments you receive, you may still have to make payments if you receive other types of income such as Social Security, prizes, rent, interest, and dividends.

Pay-as-you-go system for Estimated Taxes

You must make sufficient federal income tax payments long before the April filing deadline through withholding, estimated tax payments, or a combination of the two. If you fail to make the required payments, you may be subject to an underpayment penalty, as well as interest.

In general, you must make quarterly payments for 2020 if both of these statements apply:

  1. You expect to owe at least $1,000 in tax after subtracting tax withholding and credits, and
  2. You expect withholding and credits to be less than the smaller of 90% of your tax for 2020 or 100% of the tax on your 2019 return — 110% if your 2019 adjusted gross income was more than $150,000 ($75,000 for married couples filing separately).

If you’re a sole proprietor, partner or S corporation shareholder, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

Estimated Tax Quarterly due dates

Payment deadlines are spread out through the year. The due dates are April 15, June 15, September 15 and January 15 of the following year. However, if the date falls on a weekend or holiday, the deadline is the next business day.

The amount due is calculated by factoring in expected gross income, taxable income, deductions and credits for the year. The easiest way to pay is electronically through the Electronic Federal Tax Payment System. You can also pay by check or money order using the Payment Voucher or by credit or debit card.

Seasonal businesses

Most individuals make payments in four installments. In other words, you can determine the required annual payment, divide the number by four and make four equal payments by the due dates. But you may be able to make smaller payments under an “annualized income method.” This can be useful to people whose income isn’t uniform over the year, perhaps because of a seasonal business. You may also want to use the annualized income method if a large portion of your income comes from capital gains on the sale of securities that you sell at various times during the year.

Determining the correct amount

Contact us if you think you may be eligible to determine your estimated tax payments under the annualized income method, or you have any other questions about how the tax rules apply to you.

© 2020