How to Calculate Quarterly Estimated Tax Payments | 2021 Update

In this video, I cover the why, who, what and how to calculate and pay Quarterly Estimated Taxes.

Q: Why is it important to pay quarterly estimated tax payments?
- If you are found to have underpaid, you will be penalized for late payment of taxes

Q: Who Must Pay Estimated Taxes?
- If you expect to owe $1k or more in taxes when your tax return is filed
- Individuals - interest income, dividend income, capital gains from the sale of stock, homes, a business
- Self employed
- Sole Proprietors or single-member LLCs
- Partners
- S-Corporation shareholders

Q: Who Does Not Have to Pay Estimated Tax?
- You had no tax liability for the prior year (line 24 of page 2, Total Tax)

Safe Harbor Rule
- From the IRS, to avoid penalties for underpayment
- 90% of your total tax bill for the year, or
- 100% of your prior year tax bill
- 110% of your prior year tax bill if your AGI (line 11, page 1) was greater than $150k

Due Dates for Estimated Tax Payments
Quarter 1 - April 15
Quarter 2 - June 15
Quarter 3 - September 15
Quarter 4 - January 15

Q: How to Calculate your Estimated Tax?
1) Calculate Total Taxable Income: Either Annually or by Quarter
- Break it down by quarter (Q1 Jan-March / Q2 April-May / Q3 Ju-Aug / Q4 Sept-Dec)
- Track all income received for the quarter and deduct all eligible business expenses
- In regards to expenses, check your prior year tax return to refresh your memory on what expenses you may have incurred for the quarter

2) Apply your Federal Income Tax Rate
- For sole proprietors, LLC single members, S-Corp shareholders, Partners of Partnerships - Flow Through Income
- Check your income tax bracket: -https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets

3) Self Employment Taxes
- For those who are sole proprietors, LLC single members, partners of partnerships, don’t forget to also calculate the applicable self employment tax.
- Multiply your total income by 92.35%, then multiply that amount by 15.3%

4) Apply your State Income Tax Rate
- Take your taxable income and multiply it by your state’s income tax rate

5) Total Estimated Tax
- Add the calculated Federal income tax and self employment taxes, if applicable
- If Annual, divide by 4
- If quarterly, pay the calculated amount for to the Federal Gov and your State

Q: How to Submit Quarterly Estimated Tax Payments?
- Pay electronically - fastest and safest way
- For Federal - go to irs.gov
- Make sure to have a copy of your prior year personal income tax return (Form 1040)
- Select Make a Payment
- Select either Direct Pay (Bank Account) or Debit Card or Credit Card (if you pay with a credit card, there will be additional processing fees)
- Reason for Payment - Estimated Tax
- Apply Payment to will auto populate to 1040ES
- Select Tax Period for Payment
- Verify Identity - with all information from your prior year tax return (i.e. filing status, name, address)
- Tip: Print the confirmation page once you’ve submitted your payment
- For State - go to your state’s applicable tax site

Please note that this video is for information purposes only and is not intended to provide or relied upon for tax, legal, or accounting advice. Please consult your own CPA, tax advisor, legal and accounting advisors.

Видео How to Calculate Quarterly Estimated Tax Payments | 2021 Update канала Stephen Lee CPA