Paying estimated taxes

Lance Wallach

Once you’ve filed your income-tax return, you may be ready to put some distance between you and the IRS and turn your attention to other things. If you’re employed, you probably can take a breather, since your employer will handle ongoing income-tax payments for you through the wage withholding process. But it’s a different story if you receive other forms of taxable income — from self-employment, rental property, or investments, for example. When that’s the case, you’ll typically be required to make estimated tax payments during the year.
Generally, you must pay estimated tax for 2012 if you expect to owe at least $1,000 in tax for 2012, after subtracting withholding and refundable tax credits.

When Are Estimated Taxes Due?

Estimated taxes generally should be paid in four equal quarterly installments. The due dates for the four 2012 estimated tax payments are April 17, June 15, and September 17, 2012, and January 15, 2013. If you receive income unevenly during the year, your required estimated tax payments may not be the same for each period under the IRS’s “annualized income installment method.”

How Much Is Enough?

The IRS can charge an underpayment penalty if you don’t pay enough estimated tax for the year or if you don’t make your payments on time or in the required amount. The IRS generally requires payments of 2012 estimated tax to total at least (1) 90% of your 2012 tax liability or (2) 100% of your 2011 tax liability, whichever amount is smaller. However, if your 2011 adjusted gross income was more than $150,000 ($75,000 if your filing status was married-separate), your 2012 payments should be at least (1) 90% of your 2012 tax liability or (2) 110% of your 2011 tax liability, whichever amount is smaller.
If you or your spouse is employed, it may be possible to avoid the need to make estimated tax payments by having more tax withheld from your wages. To adjust your withholding, file a new Form W-4 with your employer. Taxpayers who had no tax liability for the 2011 tax year (the full 12-month period) and were U.S. citizens or residents for the whole year don’t have to make 2012 estimated payments.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters.  He writes about 412(i), 419, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio's All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, or visit

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

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