How to Pay Estimated Federal Income Tax
If you are self-employed or receive any income that does not have federal income taxes taken out for you, then you need to make quarterly federal estimated income tax payments. Making estimated income tax payments is not as difficult as it may sound, and in the end you would treat it just like you would a W-2 tax payment. When it is time to do your tax return, you just take all of your estimated tax information to your accountant, and together you can figure out if you owe more for the previous year or if you will be getting a tax refund.
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Instructions
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Paying Estimated Income Tax
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Establish a savings account that is separate from the checking and savings accounts you use every day. Some banks allow you to create multiple savings accounts under one single account. This would be the easiest way.
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Use an online resource such as MoneyChimp.com to determine your federal tax bracket. A tax bracket is the percentage of your income you can expect to pay in federal tax. This percentage is an excellent indicator of how much of every dollar you should save toward taxes. If you estimate that you will make $40,000 this coming year, then that puts you in the 25 percent tax bracket and you should set aside 25 cents of every dollar you make to pay your federal income tax.
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Deposit your tax bracket percentage into your extra savings account each time you get paid. For example, if you get paid an income of $1,000 for the week, and your tax bracket is 25 percent, then put $250 into your tax account.
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Download the 1040-ES estimated tax payment form from the IRS website and follow the payment schedule outlined on it. For example, if the 1040-ES says that the first estimated tax payment of the year is due by March 15, then fill out the 1040-ES form and have it in the mail along with the money you have set aside in your extra savings account by March 15. Mail a check, not cash. Fill out the check as instructed on the 1040-ES form. You can also pay online. If you are mailing your payment, look on the 1040-ES form for the correct payment address based on the state you live in.
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Keep a detailed record of all four estimated payments you make throughout the year, including check number, check amount and the date you mailed the check.
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Bring all of your estimated tax information to your accountant so he or she can determine if you paid just enough in estimated tax, not enough or too much. If you paid too much, you will get a tax refund. If you did not pay enough, you will have to pay the difference when you file your return.
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Tips & Warnings
Keep detailed records throughout the year of all of your business activities so they can be used as tax write-offs when you file your return.
