How to Compute Estimated Installment Payments

Making estimated tax payments is essential if you are self-employed. According to the norms, the total amount due as taxes must add up to 90% of tax owed for the current year or 100% of the tax owed the previous year. For those married filing separately, estimated tax payments must be made on the basis of 100% of the previous year. If you qualify as a small business owner, you are ought to calculate at 100 – 110% of the previous year. This includes federal income tax as well as self-employment (SECA) taxes due, according to tax lawyers. 

Total tax payments also include:

• Tax withholdings
• Investment income
• Pensions,
• Other sources of income

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Computing Estimated Installment Payments

Step 1

To begin with you need to look at all the major items on the tax forms and schedules filed during the year and determine whether there may be any changes for the next year. If there is likely to be a change then an approximation of the percentage of change ought to be determined.

Step 2

You need to determine how these changes will have an effect on your tax returns and arrive at an estimated amount. From this amount, you need to subtract withholdings. From the balance deduct $1,000, and the sum will be what your estimated tax payment will be. Estimated tax payments can be made on a quarterly basis, which is a salient way to keep within the limits by paying smaller amounts. You can use the IRS worksheet on Form 1040-ES to do calculate your estimated tax payments.

Regular Installment Method

You can use this method to arrive at an estimated tax figure once you know the total amount of tax due during a year. On each quarterly due date you will need pay 1/4^th of the total amount due for the year. This is an easy method which the IRS prefers when businesses use this method. However, there is no rule that you need to follow this method.

Annualized Installment Method

As per tax attorneys, if your income is unevenly distributed throughout the year, it may be prudent to follow the annualized installment method to calculate estimated tax payments. These payments may be less for one period and more in the other. Figuring out your estimated tax liability in this method may seem a bit complicated. However, you may refer to IRS Publication 505, Tax Withholding, and Estimated Tax.

You need to file Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts, if you follow this method and submit it with your individual income tax return.

Estimated tax payments can be sent by check or money order or via the Electronic Federal Tax Payment System (EFTPS). For some reason if you cannot make full payments, you ought to pay as much as you can and pay off the balance in the next quarter. Your income may fluctuate during the year, however, you can use the worksheet provided with form so that you don’t end up making under- or over-payments. The best way is to put money aside and make your estimated tax payments on time which your tax lawyer will advise you to do.

Of course if you are Antwon Mitchell (Anthony Anderson) in The Shield you do not have to worry about any of this. You do not need a tax lawyer but you he did need a criminal lawyer for the crimes he had committed. It is better do not be a killer and a thug, tax lawyers are much cheaper than having to need criminal lawyers who are eventually probably not going to be able to keep you out of prison anyway.  

Have you received notices from the IRS or from local tax agencies and you aren’t quite sure what to do? Regardless how much you owe the IRS in back taxes, you can count on a tax lawyer for help. A legal tax pro will find the most effective way to reach an agreement with the IRS or help you file taxes right the first time.