Today Marks Deadline for Some Taxpayers to Dodge Penalties
Fourth-Quarter Estimates and 2020 Levy Payments Coming Due
Today marks the deadline for some taxpayers to file their Q4 estimates in order to avoid fees: specifically, those earning income from small business, self-employment, investments, and gig economy work. Paying 90% of 2021 taxes owed by the deadline will also help avoid penalties.
Conversely, failing to meet the deadline draws penalties equal to 0.5% of the balance due, assessed each month, eventually adding up to 25% of what the taxpayer owes. For those with an adjusted gross income below $150,000 who owe 2020 levy payments, these must be submitted in full today as well. The IRS recommends submitting payment to the federal agency online or by way of IRS DirectPay.
Advisors Offer Headache-Preventing Strategies When Estimating Taxes
Tax advisors are offering up helpful standard practices and things to watch out for when estimating your quarterly tax payment. For example, if someone’s income last year was similar to 2020, one way to get a loose estimate is to divide tax liability for 2020 by four. But it’s not always that easy.
Fluctuating incomes are a reality for many who are self-employed, earn from investments, or gig economy workers. If 2020 was a down year, as it was for many, relying on that year’s liability makes little sense. There’s also the child income tax credit that determined eligibility based on 2019 or 2020 incomes, meaning an individual could owe the government money if their 2021 income rose above the given threshold.
Know What’s Best for Your Financial Situation When Considering Deadline
Advisors point out a number of other one-off considerations when calculating taxes you may owe. For example, property sales, investment liquidation, and inheritance money can all summon estimated tax payments. These atypical events may come as a surprise with respect to their lax liability, such as cashing out cryptocurrency, for example.
Still, advisors note scenarios exist wherein filers simply don’t make estimated payments due to cash flow constraints or a desire to avoid using savings. Some workers, such as independent contractors, are paid in one lump sum upon a project’s completion, meaning there’s no associated revenue for entire quarters. Hence, there are clearly a number of circumstances to consider when submitting estimated payments.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.