April 18th is drawing near, which means your 2010 taxes are due. Hopefully, your return is complete and you are basking in the glow of accomplishment. But don’t relax just yet, for you may not be done. If you are required to make estimated payments for tax year 2011, your first payment is due April 18th as well.
Our tax system is a pay-as-you-go system, which simply means the IRS likes to receive tax revenue throughout the year. If you chose not to pay into the system throughout the year, you may be assessed an underpayment penalty, so it’s important to make estimated payments when required.
Who has to make estimated payments?
The IRS doesn’t have a standard answer for this question because anyone could be subject to paying estimated payments if certain criteria are not met. Fortunately, for those who are w-2 employees, this is rare. Most often, estimated payments are reserved for those who are self-employed, receive alimony, have large amounts of interest income and capital gains, or those who have prize winnings or awards.
When are estimated payments due?
The 2011 quarterly estimated tax payment due dates are:
Quarter one: April 18, 2011
Quarter two: June 15, 2011
Quarter three: September 15, 2011
Quarter four: January 17, 2012
As I have stated many times throughout my blog postings, it’s extremely important to manage taxes from a proactive standpoint. Estimated payments allow for proactive management of our tax liability by changing the amount of payment applied to each quarter. I should note that this should be handled carefully, because making estimated payments does not eliminate the possibility of running into an underpayment penalty. The amounts paid quarterly need to meet certain minimums based on income. It’s fairly complex. This is why it is important to work with a professional when it comes to tax planning.
If your 2010 tax return is complete and you are required to make estimated payments, don’t rest just yet. Send in your first quarterly payment, no later than April 18th, and position yourself for a successful 2011 by proactively managing your tax liability.
If a large lump quarterly seems like a large bite in your cash flow. The IRS does have an option that may make the cash flow a little more manageable. You can set up your payments through the government EFTPS system. It’s designed to pay quarterly, but you can set up for withdrawals monthly. I do that myself and have turned on many of my clients to the process. The website is http://www.EFTPS.gov. Unfortunately most states aren’t quite set up for this yet. So, continue to make your quarterly state estimates.
Thanks Kelly! That’s great info. FYI…Kelly is a colleague located in MI. She’s a great advisor, as well as a tax guru!
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