Don't Mess With Taxes

You probably are getting ready for the three-day weekend coming up with the Rev. Dr. Martin Luther King, Jr. federal holiday on Monday, Jan. 15.

But if you pay estimated taxes, you also know that date usually is the deadline for the prior tax year's fourth payment. Since it's MLK Day this year, this due date is pushed to the next business day, Tuesday, Jan. 16.

You need to meet that final deadline to avoid a possible tax bill or penalty (or both) when your file your 2023 tax return later this year.

Why estimated tax? Most of us pay our federal income taxes throughout the tax via the withholding from our paychecks.

But if you are your own full-time boss, or have side income from a variety of gig work in addition to your salaried job, you need to make estimated tax payments. This process is the rough self-employed equivalent to withholding.

Estimated tax also is due on any other amounts you get that aren't subject to payroll withholding. This includes such things as investment earnings, including from digital assets; any other profit from property you sold; and gambling payouts and prizes.

Also, various financial transactions, especially late in the year, can often have an unexpected tax impact. Examples include year-end and holiday bonuses, lottery winnings, stock dividends, capital gain distributions from mutual funds, stocks, bonds, virtual currency, real estate or other property sold at a profit.

If when you file you discover that you owe Uncle Sam $1,000 or more, the IRS will slap on interest charges to any amount that's not been paid for the due estimated tax period. The interest rate for the first quarter of 2024 is 8 percent. It's also compounded daily, meaning amounts can add up quickly.

You can read more about estimated taxes in my earlier posts, The scoop on paying estimated taxes and A quick estimated tax Q&A in advance of the deadline.

A key takeaway in those items and today's post is don't miss the deadline, which, again, is Tuesday, Jan. 16.

How to pay: If you must make the final 2023 tax year 1040-ES payment next week, you have several payment options.

Paying electronically is the fastest and easiest way to meet your estimated tax payment deadline. Those options include —

• IRS Direct Pay. This option allows taxpayers to schedule a no-cost transfer directly from a checking or savings account in advance of the Jan. 16 deadline.
• IRS Online Account. This option allows taxpayers to view their payment history, pending or recent payments and other tax information. If you don't have an existing IRS username or an ID.me account, have your photo identification ready. More information about identity verification is available on the IRS.gov taxpayer account sign-in page.
• Electronic Filing Tax Payment System, or EFTPS. EFTPS is a free system which offers selections such as scheduling payments a year in advance, paying estimated tax payments and tracking and changing scheduled payments. However, you must have created an account before you can use it.
• Debit or credit card or digital wallet. This is fast, easy, and familiar to most of us. The three vendors the IRS has approved for 2023 payments are payUSAtax, Pay1040, and ACI Payments, Inc. Note, however, that the card processors (not the IRS) charge a fee for the service.
• IRS2Go. The IRS' mobile app gives you access to Direct Pay or credit/debit card payment options.

Using these electronic payment options ensures that a payment gets credited promptly. More information on other payment options is available at IRS.gov/payments.

Staying and paying old-school: If you're still a tax traditionalist, the IRS has you covered.

You can pay by phone by calling toll-free one of the IRS-approved debit or credit card service providers noted above. Those toll-free telephone numbers are —

• payUSAtax at 1-844-PAY-TAX-8 (1-844-729-8298),
• Pay1040 at 1-888-PAY-1040 (1-888-729-1040), and
• ACI Payments, Inc. at 1-800-2PAY-TAX (1-800-272-9829).

Again, the same fees that are charged for online payments apply to telephone tax charges, too.

For those who are truly and totally old-school, you still can snail mail the IRS a paper check or money order. Full disclosure: I've done this when an estimated tax deadline sneaked up on me. OK, the main reason was I had to transfer money to my checking account to pay my tax bill.

In that case, mailing your tax payment has an advantage. You meet your estimated tax obligation by simply getting the payment in the mail in time to get it postmarked by the due date. Just like when sending in your annual tax return, the postmark counts as timely filing.

The day or so it takes the voucher and check to get to the IRS should give your bank time to clear the transfer so that your check won't bounce.

If you do decide to mail your estimated tax payment, download the 2023 estimated tax package and include the appropriate payment voucher with your payment. Below is the voucher for the upcoming final payment.

See more tax forms and more about them at Tax Forms 2024.

Estimated tax planning: Finally, get ready for 2024 estimated tax payments.

Now is the time to assess your estimated tax responsibilities from 2023, and determine if they will be roughly the same for this year. That will give you an idea of the coming 1040-ES amounts you'll have to send to the IRS.

The table below shows the due dates for 2024's estimated taxes are due on the regular schedule shown below.

Although they are called quarterly estimated tax payments, that simply means there are four of them. They don't fit the time frames we usually think of when we divide the calendar into quarters, although there is some Congressional interest in realigning estimated tax deadlines to calendar quarters.

Until then, though, here are the estimated tax due dates for the 2024 tax year.

As noted by the asterisk in the table, two 2024 estimated tax payment deadlines move because the 15th in June and September falls on weekends.

Also, you don't have to make the Jan. 15, 2025, payment if you file your 2024 tax return by Jan. 31, 2025, and pay the entire balance due with your return. I know, I know. Maybe a bit too long-range planning for many of us.

The bottom line is to know when you owe estimated taxes and make the payments on time.

It is a bit of a hassle, but meeting the due dates and paying an accurate amount will save you in the long run.

You also might find these items of interest:

• Mark your tax calendar: Key 2024 federal tax dates
• Got more than wage income? Here's how to report it.
• Safe harbors and other ways to avoid estimated tax penalties

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