Final Tax Estimate for 2008 Approaching Quickly

Just a reminder that your fourth quarter 2008 tax estimate is due on January 15, 2009.

This estimate goes towards your 2008 tax liability so it reduces the amount you will owe on your 2008 tax return when you file.

To avoid the penalty for not paying enough estimated tax, you need to pay in at least 90% of your 2008 tax liability or 100% of your 2007 tax liability, whichever is less.

Alternatively, you can choose to file and pay your 2008 taxes by January 31, 2009 to avoid any underpayment penalties.

Use Form 1040-ES to submit your estimated tax payment.

For a refresher on estimated tax payments, see ‘Do I Need to Make Estimated Tax Payments?’

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Don’t forget your third quarter tax estimate!

If you have your own business, then you’re probably aware that the third quarter tax estimate is due very soon (Sept 17).

If you just started your business, you may not be aware of how tax estimates work.

Basically, in the United States, we operate on a pay-as-you-go tax
system.  That means you pay taxes as you earn income throughout the
year.

If you are an employee, you pay taxes through withholding.  If you
are self employed, you pay taxes by making estimated tax payments.

The general rule is that you must make estimated tax
payments if you expect to owe at least $1,000 in tax for the current
tax year, after subtracting your withholding and tax credits, AND if
you expect your withholding and tax credits to be less than the
smaller of:

• 90% of the tax liability on your current year
  tax return, or
• 100% of the tax liability on your prior year’s
  tax return

Generally, you will estimate your tax liability for
the entire year and divide that amount by four to determine your
quarterly estimated tax payments.

The due dates for quarterly estimated tax payments are April 15,
June 15, September 15 and January 15.  If the 15th falls on a weekend
or a holiday, the due date is the next business day.

It’s important to send the right amount in at the right time to avoid interest and penalties.

For help estimating your quarterly estimated tax payments, check out How to Pay Estimated Taxes, or contact Kristine for tax planning/estimates today.