Quarterly estimated tax payments are a crucial aspect of tax planning for anyone who does not have taxes withheld from their income. This includes individuals with contract jobs, freelancers, gig economy workers, small business owners, and even those who have received a large distribution from a retirement account or profit from selling an asset. These payments are necessary to avoid penalties and ensure compliance with the IRS.
The second-quarter estimated tax deadline for 2024 is June 17, and failing to send a payment by this date could result in a penalty. The penalty is calculated based on the current interest rate and the balance due, which can add up quickly if multiple deadlines are missed. To avoid these penalties, it is essential to meet the IRS’s “safe harbor rules,” which require payment of at least 90% of the current year’s tax liability or 100% of the previous year’s taxes, whichever is smaller.
For individuals with an adjusted gross income of $150,000 or higher in 2023, the threshold for safe harbor compliance increases to 110%. This means that higher-income earners must make larger estimated tax payments to avoid penalties. It is important to note that while safe harbor rules protect from penalties, individuals may still owe taxes if their income exceeds previous years and they do not adjust their estimated payments accordingly.
If you are expecting significant income growth in 2024, it is advisable to consult with a tax professional to develop a proper tax plan and projection. Tax professionals can help you determine the appropriate amount to pay in estimated taxes to avoid underpayment and potential penalties. This proactive approach can save you money in the long run and ensure compliance with tax regulations.
The IRS recommends making estimated tax payments online for a secure, fast, and easy process. Online payment options include IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), and using your online IRS account. These methods streamline the payment process and provide a convenient way to track and reconcile transactions. Alternatively, if you prefer to mail payments, experts suggest using certified mail with a return receipt to ensure proof of timely payment.
The second-quarter estimated tax deadline for 2024 is a critical date for individuals who are required to make quarterly estimated tax payments. Failing to meet this deadline or making underpayments can result in penalties and additional interest charges. By understanding the importance of estimated tax payments, complying with safe harbor rules, and seeking assistance from tax professionals, individuals can ensure accurate tax planning and avoid potential financial implications.
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