“TAXATION means more than just revenue. It is a tool towards development.”
Income tax is one of the greatest sources of income for the leading government. The funds paid by the citizens are used to run the country and enhance its civil operations. It is compulsory for every citizen, who is earning some cash in hand, to pay the taxes. Whether you are an employee in an organization or earning income through means of self-employment, you are eligible to pay duties to the federal government.
Perhaps there might be a difference in the method of paying. When you are working in a company, your employer takes care of tax returns, and it is paid annually. But when you are self-employed, you need to maintain your own tax records, and you need to pay your taxes four times a year which is known as Quarterly Estimated Tax Payment. In this article, we’ll have a closer look at the Quarterly Tax System and the use of the Quarterly Tax Calculator to make the tax payment estimation hassle-free for everybody.
Taxpayers who are required to Pay Estimated Quarterly Taxes
Every earning citizen of the country needs to share part of their income with the legal authorities. Employees who systematically receive monthly salaries and wages need not pay estimated tax payments as their employers withhold tax from their paychecks. Let us see who all needs to pay these quarterly tax payments.
1. Freelancers – who do not work in a company and are termed as self-employed
2. An independent contractor- who provides independent services such as doctors, lawyers, musicians, etc.
3. Sole proprietor- who single-handedly owns the business
4. Investors who receive dividend income and generate capital gains
5. Bondholders who get interest income
6. Writers who earn royalties on their work
7. Landlords who receive rental income
8. Individuals who receive prize money and awards
9. Shareholders- who own any company’s shares
10. People receiving pensions or any other retirement benefits
The taxpayers mentioned above are eligible to pay taxes under two conditions:
- When they expect to owe more than $1,000 while filing the tax return
- When they owe tax in the last year
The Right Time to Pay Estimated Taxes
To pay quarterly estimated tax, the total tax amount liable to be paid is divided into four segments and has four payment periods in a year. That’s the reason they are known as quarterly taxes. Taxpayers are required to make a payment each quarter. The dates for each quarter are fixed every year. The first quarterly due date falls on April 15. The second quarterly due date comes on June 15, the third on Sept. 15, and the last quarter’s payment due date is on Jan. 15 of the next following year.
*Note – When these dates fall on weekend days or public holidays, the next business date is chosen as the due date.
These due dates are very important and should be strictly taken into consideration as there are penalties charged on late payment. There are also other reasons why an individual can fall prey to these penalties. Let’s discuss tax penalties in detail so that a taxpayer can save himself from these faulty charges.
Penalties related to Quarterly Estimated taxes
When you break the law or a rule, you need to face some punishment. The same is the case with tax penalties. Whether you miss your due date or make a mistake while filing the tax return, you are charged with some fine that you need to pay to the government. There might be various reasons for which you may owe a tax penalty, such as when you fail to file your tax record on time or when you don’t provide accurate return information.
*Note: If you fail to pay the penalty altogether, the government will impose interest on a penalty every month until the total amount is paid. That is why it’s best to use a Quarterly Tax Calculator that does not let anyone miss the due date.
Types of Tax Penalties
Here are some penalties mentioned below related to different reasons that are issued to an individual through notices and letters.
1. Information Return Penalties: This is issued when a taxpayer fails to file information returns or give payee statements on time.
2. Failure to File Penalty: This is applied when a taxpayer fails to file a tax return by the due date.
3. Failure to Pay Penalty: This is applied when a taxpayer fails to pay the tax amount he owes by the due date.
4. Accuracy-Related Penalty: This is issued when a taxpayer underpays the tax amount that needs to be shown on the return. This might happen when an individual fails to report all of his income or in cases where he claims certain deductions or credits which are not legally qualified.
5. Underpayment of Estimated Tax by Corporations Penalty: This is applied to corporations that fail to pay enough estimated tax payments or pay the taxes after the due date.
6. Underpayment of Estimated Tax by Individuals Penalty: This is issued to individuals, trusts, and estates when they miss the due date or don’t pay enough estimated tax on the eligible income.
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Relief from Tax Penalties
However, in some cases, the government might waive the penalty if taxpayers meet any of these conditions:
1. When an individual owes less than $1,000 in the current tax year.
2. If the taxpayer has already paid 90% of the tax for the current year
3. When an individual has paid 100% of the tax filed on their tax return for the previous year
4. When an individual underpays the tax due to some casualties or natural disaster.
5. When a taxpayer gets retired during a tax year when estimated tax payments are applied.
6. When an individual meets with an accident and gets handicapped during a tax year when estimated tax payments are applied.
What’s the fastest method to file quarterly taxes?
As we have seen above, filing your quarterly estimated taxes on time is very important. You need to record all your estimated tax payments on Form 1040. The fastest method to file taxes is via e-file, as they will be electronically transmitted to the IRS. Other ways to file the tax are via Same-day wire, Check or money order, or Cash.
While there is one more efficient method to file the quarterly taxes, and that is using the quarterly tax calculator. You can rely on Fly-fin, which automatically calculates the taxes and allows the user to pay directly to the IRS with one click. Fly-fin’s quarterly tax calculator can accurately calculate the precise quarterly tax amount simply by scanning all the expenses of the user. The whole process is done in less than five minutes and thus makes tax payment a hassle-free task.