Do you like paying tax penalties?
If you do not pay in 90% of what you owe by April 15 the IRS simply charges you an estimated tax payment penalty. It is automatically added to what you owe for taxes for the year. It can be somewhat substantial. A recent client owed $18,000 plus a $850 estimated tax penalty. So, they owed $18,850 as a result.
Why incur this penalty. If you owe money, simply have your tax preparer prepare quarterly tax estimates for you and pay them on time. This is quite common with self-employed taxpayers. It is far better to pay the estimates than incur penalties each year.
Another related penalty is the late filing penalty.
You can avoid this by having your preparer file a 6-month tax extension for you. However, do not wait until the last day to do this. Lots of things can go wrong when filing an extension and it is filed on the last day there is no time to correct the issue and then you are late.
Both penalties can be avoided. A simple call to your tax preparer in March to request an extension is a good plan. However, do not call the tax preparer every day to see if they have filed your extension. It is a good way to get the tax preparer to not want to do business with you.
For the estimated tax payments your tax preparer will provide you with 4 payment coupons which you can mail in with your check. If you are an employee, you may alternatively adjust your W4 withholding with your employer or if you are making large income on stocks or dividends you may ask your broker to withhold income taxes for you. If you have retirement income, you may contact them to increase your withholding.
So don’t get caught in the penalty trap.
The IRS is more than willing to accept your penalties. Why give them the opportunity?
Philip Garnett, Tax Resolution Specialist is an excellent solution for you. If you need help in preparing estimates first seek help from your tax preparer. If that doesn’t work out give us a call at 360-623-1375.