Estimated Tax Payments
- If you received income where taxes weren’t withheld — such as money from self-employment, investments or alimony — you’re generally required to pay estimated taxes.
- Use Form 1040-ES – Estimated Tax for Individuals to figure your estimated tax payments.
- If you underpay your estimated taxes, you might be subject to a penalty.
What are estimated taxes?
You’re required to pay estimated taxes if you receive income from which taxes aren’t withheld , including money from self-employment, investments and alimony, and your tax (after subtracting credits and withholding) is expected to be $1,000 or more. Here are a few good things to know about estimated tax payments:
- The payments are due April 15, June 16, Sept. 15 and Jan. 15.
- If you fail to pay enough on each installment due date, you may be subject to the penalty for underpayment of estimated tax even if your return shows a refund.
- If you pay in as much as your tax liability for the previous year, you can pay your balance due without penalty when you file your return, regardless of the amount. See below if your prior-year income was high.
How much do I pay?
As part of your year-end planning, compare your projected year-end tax payments with your expected tax liability. If your payments are expected to be less than 90% of current-year tax, you generally will have to increase your withholding or estimated tax payments. However, if your payments are made timely and will be at least as much as your prior-year tax liability, you’re probably safe from the penalty. But if your prior-year adjusted gross income was more than $150,000 ($75,000 if Married Filing Separately), you’ll have to pay 110% of your prior year tax liability. Figure your estimated tax with Form 1040-ES – Estimated Tax for Individuals.
Overwitholding Taxes
Tax withheld from your paycheck is considered to be paid evenly throughout the year, which means overwithholding in November and December can make up for earlier underpayments. If you have a job, arrange with your employer to withhold extra amounts from the final paychecks of the year so you’re not subject to the penalty when you file your return.
Underpayment of Estimated Taxes
If you do not make enough estimated tax payments and are subject to the penalty, don’t automatically pay it. There are several exceptions to the penalty. Information can be found in the instructions for Form 2210.Use our Withholding Calculator to determine the withholding amount that’s right for you.
Job Deductions
The following are some job related deductions that you need to consider for filing your tax return.
- Common employment deductions include your computer, mobile phone, work uniforms, union dues and professional or trade association dues.
- Although the cost of driving to and from work isn’t deductible, travel to secondary or temporary job locations could be.
- The expenses of using an area of your home for business may be deductible if the area is used exclusively and regularly for work and the use is for your employer’s convenience.
Which deductions qualify and why?
If you do end up paying out-of-pocket for job-related expenses, you may be able to deduct them on your return. In general, deductible expenses must be ordinary and necessary. An expense is ordinary if it is common and accepted in your trade, business or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary.
Deductible expenses include the following:
- bonding
- physical examinations
- office supplies not provided by your employer
- professional or trade association dues
- research, lecture and writing expenses
- safety clothes and equipment
- union dues
- personal tools and equipment
- travel, meal and entertainment expenses (see Publication 463)
- computers and mobile phones (see Publication 946)
You must report these and other unreimbursed business expenses on line 20, Schedule A or on Form 2106.
Business Travel
The expense of your daily commute to work isn’t deductible. However, if you find that you must travel to secondary or temporary locations — even within your metropolitan area — as part of your job and your employer does not reimburse you for that travel, those expenses may be deductible. Also, travel to and from a second job may be deductible.
Unreimbursed expenses for business travel outside of your metropolitan area may also be deductible. And you generally can deduct 50% of the cost of qualifying meals and entertainment expenses. You must complete Form 2106 to claim these deductions.
Home Office
If you use a portion of your home regularly and exclusively for business, you may be able to deduct expenses for that portion of the home, including interest, taxes, rent, insurance and utilities. You can deduct business expenses for the use of your home only if the use is for your employer’s convenience. Special rules apply if your employer pays you rent for the portion of the home you use for business.