With nearly 10 million U.S. taxpayers facing a penalty for underpayment of estimated tax last year, you should plan ahead, understand the options and avoid the huge penalty when filing 2018 Tax Return! And time is moving so quickly you may already be in the unfortunate penalty provisions.
Those of us who fall into the following categories are very susceptible to these penalties:
1. Self-employed
2. Receiving other income, such as
a. Interest,
b. Dividends,
c. Self-employment,
d. Capital gains,
e. Prizes and awards or
f. Too little tax withheld from wages.
You probably need to either:
1. Immediately begin making Estimate Tax Payment,
2. Immediately make a Lump Sum Tax Payment for 2018
3. Increase your withholding on Earnings
4. Increase withholding on Royalties, Capital Gains, Pension
Distributions, and Bonuses.
The U.S. tax system is essentially “pay-as-you-go.” Taxes must be paid as income is earned or received during the year. If you receive salaries, wages, pensions, unemployment compensation and the taxable part of Social Security benefits, tax can be withheld or tax can be increased on its withholding.
You can adjust withholding on your paychecks or the amount of their estimated tax payments to help prevent penalties. This is especially important if you have more than one job or have major changes in their life, like a recent marriage, divorce or a new child.
Some income is not subject to withholding but should certainly look at filing Estimated Tax Vouchers now. This includes income from self-employment or rental activities. Individuals, including sole proprietors, partners and S corporation shareholders, may need to make estimated tax payments unless you owe less than $1,000 when you file your tax return or had no tax liability in the prior year (subject to certain conditions, of course)!
When and how to pay estimated tax
Normally, you make four estimated tax payments a year. There is only one estimated payment left for 2018 since September 17, 2018 due date has already passed; January 15, 2019 is the final payment date. Those who make estimated payments may be charged a penalty if those payments are late! You may want to still make the 3rd Voucher payment now as well as the 4th Voucher on or before January 15, 2019.
If you have additional questions, please just give us a call so we can go over this procedure and calculation as it applies to your particular situation.
Michael B. Nelson
