Don't Mess With Taxes

Thank goodness for the tax moves calendar there in the left column, as well as the big pink Post-It note in my desk datebook, both of which are reminding me that next Tuesday, June 15, is once again estimated tax payment time.

This upcoming 1040ES payment will be number two for the 2010 tax year.

Yes, it's only been two months since April 15 when you made that first estimated payment for the year.

But the IRS now wants the money you got in April and May that wasn't subject to withholding.

Actually, Uncle Sam would like this payment to be the same as what you made in April.

He also wants that very same amount in September (payment #3) and finally in January 2011 (the fourth and final payment) to finish up your 2010 estimated tax obligations.

Not so quarterly schedule: These so-called quarterly payments are preferred by the tax collector, who recommends that you start each tax year off by making a good estimate of what you'll owe and then sending in the necessary estimated tax payments in four equal installments.

Here's the not-quite-right "quarterly" payment scheme the IRS has devised:

The estimated deadlines follow the same IRS rules when it comes to a due date on a Saturday, Sunday or legal holiday; that is,  you have until the next business day to make the payment.

And the filing is considered on time if it is postmarked by the due date.

Opting to annualize: For some folks, though, coming up with an estimated tax amount at the beginning of the year is difficult. Even it good economic times, it's often hard to know how much money you'll pull in during the coming 12 months.

Such fiscal predicting could be especially challenging if, for example, your work is seasonal.

And an uneven income stream also poses real payment problems.

Say you're a landscaper and the bulk of your income is made during the spring and summer. You're flush with cash then, but just don't have the funds in January to make that final payment.

You can choose to make more precise estimated tax payments based on exactly what you earned when you earned it.

This annualized estimated tax payment method requires more attention to detail and, of course, more IRS paperwork (Form 2210 and Schedule A1, found on page for of that form). But for cash flow purposes it might be worth the trouble.

Sailing into a tax safe harbor: Or you can make use of the safe harbor the IRS provides.

If this tax year you pay the same amount of taxes you paid last year, through a combination of estimated payments and any withholding you have, you won't be penalized for late or underpayment of your taxes.

Married folks get a bonus here. If you file a joint return, like the hubby and me, and your spouse has withholding income (the hubby in my case), you can bump up that wage income withholding a bit in the latter part of the year to make sure you meet the prior year's safe harbor tax amount.

Note, however, that if you make a lot of money -- more than $150,000 (for married couples filing jointly and single taxpayers; $75,000 for married taxpayers filing separately) -- the safe harbor percentage is higher. Here you must pay 110 percent of your 2009 tax bill.

Snail mail or e-pay: As with your regular taxes, you can pay your estimated amounts electronically.

If you have an account with the IRS' Electronic Federal Tax Payment System, or EFTPS, you can log on to make the payment. In fact, you can schedule the whole year's payments in one session.

You also can use a credit card to make our estimated tax payments. Just remember, though, that you'll pay a service charge if you pay this way.

Or you can always stop by the post office and let the mail carrier take care of getting your estimated payment to the IRS.

And don't forget Uncle Sam's tax collecting cousins. If you owe estimated taxes to your state tax department, most of those offices follow the IRS due dates!

Related posts:

• Figuring your estimated tax amount
• Estimated tax time again
• ES time means EFTPS enrollment time
  
• EFTPS 'R' Us
• State Tax Departments