If you’re a self-employed individual, you can run into a variety of tax issues when it’s time to file your tax return, and some of these can be very costly. One such issue is the IRS underpayment penalty, which is levied on taxpayers who don’t contribute enough in taxes throughout the year. Because the U.S. tax system is pay as you go, failing to pay the right amount through the year means that the IRS can apply a severe penalty on your account. This penalty is higher than the prime rate and computed on a quarterly basis.
Fortunately, you can easily avoid this underpayment penalty if you take steps throughout the year to ensure you’re paying the right amount and paying on time. To make certain that the IRS does not charge you an underpayment penalty, you may need to make quarterly payments. The IRS divides the tax year into four payment periods:
- January 1–March 31
- April 1–May 31
- June 1–August 31
- September 1–December 31
Each of these periods has a payment deadline that usually falls on or around the 15th of the following month. If you make your estimated payments by these deadlines, you will likely avoid having to pay extra in penalties when you file your return.
If you aren’t sure what you should be paying in estimated taxes, reach out to the tax help professionals at Taxation Solutions, Inc. We have a wealth of experience dealing with tax problems of all varieties, and we’ll use our expertise to help ensure you’re not hit with excessive underpayment penalties!