What is IRS Form 1040-ES: Estimated Tax for Individuals?
What is IRS Form 1040-ES: Estimated Tax for Individuals? The IRS provides Form 1040-ES for you to calculate and pay estimated taxes for the current year. While the 1040 relates to the previous year, the estimated tax form calculates taxes for the current year.
What is IRS Form 1040-ES: Estimated Tax for Individuals? You use Form 1040-ES to pay income tax, self-employment tax and any other tax you may be liable for.
Who pays estimated tax? Not all income is set up so that taxes are deducted at the source. Independent contractors and freelancers, for example, do not have tax deducted from their pay.
Who pays estimated tax? Earnings from interest, dividends and rent, taxable unemployment compensation, retirement benefits and the taxable part of your Social Security benefits are other examples of income that is not taxed at the source. If you have any such income coming in, then you should pay the estimated tax.
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Paying estimated taxes The estimated tax payment is based on an estimation of your income for the current year. As such, it is possible to underestimate, resulting in an underpayment and penalty. To avoid this penalty, use your previous year’s taxes as a guide.
Paying estimated taxes As long as you pay 100 percent of the previous year's tax, you won’t be subject to the penalty. If you end up overpaying, you can receive a tax refund at the end of the year.
Paying estimated taxes You should pay the quarterly tax in a timely fashion, or you may find yourself subject to a penalty for a particular quarter because the tax was received late, even if you overpaid the total tax due for the year and are eligible for a refund.
Calculating estimated taxes The calculation is based on an estimate of current income. To help with the estimation, you can start with the previous year's federal tax return.
Calculating estimated taxes Look at the taxable income, tax paid, credits and deductions from the previous year and compare to the current year’s numbers. The Form 1040-ES package includes worksheets to help you account for differences between the previous and current year’s income and calculate the tax you owe.
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