Money Talk With Tiff
Money Talk With Tiff
Episode•April 11, 2023•9 min

What Are Estimated Taxes? | Ep. 219

What are estimated taxes? I break it down in this episode and explain everything you need to know!  You'll learn what they are, when to pay them, how to calculate them, and more. So whether you're a business owner or an individual, this episode is for you! Every Tuesday, Tiffany answers one of your submitted questions. To submit a question for an upcoming episode, visit here: https://www.moneytalkwitht.com/asktiffany This podcast uses the following third-party services for analysis: Podcorn - https://podcorn.com/privacy OP3 - https://op3.dev/privacy

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Key Takeaways

  • 1

    Estimated taxes are quarterly payments made throughout the year to cover anticipated tax liability for income not subject to withholding.

    Applies to self-employed individuals, contractors, business owners, and anyone receiving income from interest, dividends, alimony, rent, asset sales, prizes, or awards.

    Required if you expect to owe at least $1,000 in taxes after subtracting withholding and refundable credits.

    Payments help avoid underpayment penalties from the IRS.

  • 2

    Estimated tax payments are generally due quarterly on the 15th of the month following each quarter's end.

    Q1: April 15th

    Q2: June 15th

    Q3: September 15th

    Q4: January 15th

    Corporations may also need to make these payments depending on tax liability.

  • 3

    Use the IRS Estimated Tax Worksheet or a tax professional to calculate accurate estimated payments.

    The worksheet accounts for income, deductions, and credits like the Earned Income Tax Credit or Child Tax Credit.

    Deductions may include business expenses, medical costs, charitable contributions, and home office expenses.

    Avoid relying on unverified online calculators; stick with official IRS resources.

  • 4

    Failing to make timely estimated payments can result in penalties in addition to regular tax liability.

    Penalties can add up quickly depending on the amount owed.

    Making payments throughout the year helps manage cash flow and avoids large year-end surprises.

Intro

  • In this episode, Tiffany answers a listener question about estimated taxes, explaining what they are, when to pay them, how to calculate them, and why they matter for business owners and self-employed individuals.
  • Tiffany is the host of the Money Talk with Tiff podcast and a financial coach who answers listener-submitted money questions every Tuesday.
Submit a Question

– What Are Estimated Taxes?

  • Estimated taxes are payments made throughout the year to cover anticipated tax liability for income that is not subject to withholding. This applies to business owners, contractors, and anyone whose income isn't withheld by an employer.

If you're a business owner, you're a contractor, anything that doesn't require that an employer withhold your taxes for you, that means you're responsible for your taxes yourself, then you may also be responsible for paying estimated taxes.

– Tiffany

– When Are You Liable for Estimated Taxes?

  • You must make estimated tax payments if you expect to owe at least $1,000 in taxes after subtracting withholding and refundable credits. You may also be liable if withholding and credits are expected to be less than 90% of the current year's tax or 100% of the prior year's tax.
  • Corporations (especially C corps, and sometimes S corps or LLCs) may also need to make estimated payments if they owe more than $1,000.

– Quarterly Payment Schedule

  • Estimated tax payments are generally due on the 15th of the month following each quarter:
  • Q1: April 15th
  • Q2: June 15th
  • Q3: September 15th
  • Q4: January 15th

– Why Make Estimated Payments?

  • If you don't make estimated payments, you may face penalties for underpayment of taxes. These penalties are in addition to any regular income tax liability and can add up quickly.

If you don't pay us throughout the year and you wait till the end of the year and you got more than a thousand dollars... then we're going to penalize you because you should have did this throughout the year.

– Tiffany

– How to Calculate Estimated Taxes

  • Use the IRS Estimated Tax Worksheet or a similar calculator from the IRS website. This accounts for your unique income, deductions, and credits. Avoid unverified online calculators.

I highly recommend sticking with what the IRS gives you because you never know if, let's say, you find an online calculator, if they updated it or keep it up to date.

– Tiffany

Resources

Topics

estimated taxesself-employment taxesquarterly tax paymentstax planningIRS compliancebusiness taxestax penaltiestax deductionstax creditsfinancial education
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