Tips for Estimated Tax Payments

What You Need to Know About Paying Estimated Taxes

1040 estimated tax form
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If you're making estimated tax payments, you'll need to have a schedule on hand to tell you when each payment is due to be received by Internal Revenue Service.

The third estimated tax payment for the year 2016 is due by September 15, 2016. A fourth payment will be accepted until January 17, 2017.

Tips for Making Estimated Tax Payments

Here are some tips to help make the most of it.

1. Use the 2015 tax return as a baseline to help figure out 2016 estimates.
Tax software is capable of using data in the 2015 tax return to calculate estimated payments for 2016.

Some software even has the ability to build scenarios so that income or deductions can be adjusted up or down. Using such a planning utility helps make the calculations for estimated payments more accurate.

2. Consider tripling up on the third payment if you missed the first and second estimated tax due dates.
Sometimes, a person will skip paying the first estimated tax payment, which is due on April 15, simply because April 15th is also the day for making the final payment for the previous year. And they also skip their second estimated payment (June 15th), because their accountant isn't done with their tax return yet. That's understandable. To catch up on one's 2016 payments, pay a little extra on the third payment. This helps avoid any tax surprises -- and cash crunch situations -- next April.

If the 2015 tax return is not yet finished, at least start figuring out what the estimated tax bill for 2016 will be.

That way one can start paying ahead, even while last year's return is being finalized.

3. Make a one-time estimated payment on one-time financial events.
Made a big stock sale? Or perhaps you sold your house? Or perhaps a lot of restricted stock just  vested? Big financial events are a prime time to revisit one's tax calculations with an eye to figuring out if any estimated tax needs to be paid.

4. Keep an eye on the thresholds that trigger the estimated tax penalty.
This penalty can be avoided if, among other things, a person has "paid at least 90% of the tax for the current year [2016], or 100% of the tax shown on the return for the prior year [2015], whichever is smaller" (IRS.gov, "Estimated Taxes.")

5. The next payment deadline is January 17, 2016.
Plan for that eventuality now. For example, consider setting aside some estimated tax every time a client pays an invoice.

Next steps:

Check out these apps for calculating federal taxes:

  • Tax Calculator by TaxSlayer. This nice-looking app can calculate federal income tax on wages, business profits, unemployment benefits, and Social Security benefits. And it handles common deductions for home and property, charity donations, education, and IRA contributions. Check it out via the Apple App Store, Google Play, or their Web app.
  • TaxCaster by Intuit. This app also calculates federal tax. You can put into your income and other financial figures by sliding a button, or you can tap the little grey arrow (>) to reveal a place where you can type in actual numbers. Check it out via the Apple App Store, Google Play, or their Web app.
  • TaxMode by Sawhney Systems. This is the most thorough of all the apps with its support for both simple and "full" data input. Free trial. Check it out via the Apple App Store, Google Play, or their Web app.
  • Total Tax Insights by the American Institute of CPAs. This Web-only app calculates federal and state income taxes, and even estimates property tax, cell phone taxes, and other state and local taxes. Plus you can compare your tax calculations against two additional locations, which could be a handy tool if you're thinking of moving. Check out their Web app.

To learn more about Estimated Taxes:

You can pay estimated tax either through: