Taxes (Photo credit: Tax Credits)

If your income, or part of your income, is from a source other than an employer who provides you with a W2 and therefore withholds taxes on your behalf through the year, you may need to make estimated tax payments.  There are ways around this, such as having tax withheld from your pension or Social Security payments.  But for some folks, estimated tax payments are the way to get your tax paid through the year.

If your only income for the year is from withdrawals from an IRA, you don’t need to make quarterly payments, you can wait until the end of the year to withdraw the amount you need to pay in tax.  Otherwise, for most other types of income you need to pay tax as you receive it during the year.  You will make one payment in mid-April for your income through March 31; another in mid-June for income through May 31; a third in mid-September for income through August 31, and a final payment by mid-January of the following year for income to December 31.

The IRS recently published their Tax Tip 2012-65, which includes tips for people who pay estimated taxes.  Below is the text of the Tip:

Six Tips for People Who Pay Estimated Taxes

You may need to pay estimated taxes to the IRS during the year if you have income that is not subject to withholding.  This depends on what you do for a living and the types of income you receive.

These six tips from the IRS explain estimated taxes and how to pay them.

1. If you have income from sources such as self-employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, then you may have to pay estimated tax.
2. As a general rule, you must pay estimated taxes in 2012 if both of these statements apply: 1) You expect to owe at least $1,000 in tax after subtracting your tax withholding (if you have any) and tax credits, and 2) You expect your withholding and credits to be less than the smaller of 90 percent of your 2012 taxes or 100 percent of the tax on your 2011 return.  Special rules apply for farmers, fishermen, certain household employers and certain higher income taxpayers.
3. For Sole Proprietors, Partners and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.
4. To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions and credits for the year.  Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, for this.  You want to be as accurate as possible to avoid penalties.  Also, consider changes in your situation and recent tax law changes.
5. The year is divided into four payment periods, or due dates, foe estimated tax purposes.  Those dates generally are April 15, June 15, September 15, and January 15 of the next or following year.
6. Form 1040-ES, Estimated Tax for Individuals, has everything you need to pay estimated taxes.  It includes instructions, worksheets, schedules and payment vouchers.  However, the easiest way to pay estimated taxes is electronically through the Electronic Federal Tax Payment System, or EFTPS, at www.irs.gov.  You can also pay estimated taxes by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

For more information on estimated taxes, refer to Form 1040-ES and its instructions and Publication 505, Tax Withholding and Estimated Tax.  These forms and publications are available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

(Photo credit: Wikipedia)

If you find yourself missing the complete information to finish filing your return on time, or if you just haven’t got the time to fill out the forms, you can always file for an extension of time to file.  This is an automatic extension of six months – to October 15 in most cases.  This is only an extension of the time to file your return, not an extension of the time to pay any tax due – you will have to send the tax due (your estimate) by April 17 this year.

The IRS recently issued their Tax Tip 2012-70, which explains some of the provisions around filing for an extension.  The complete text of this Tip is below:

Need Extra Time to Complete Your Tax Return? File for an Extension

Even though the tax filing deadline is later than usual this year — April 17 — many taxpayers may still need more time to file their tax return.  If you need extra time, you can get an automatic six-month extension of time to file from the IRS.

Here are seven important things you need to know about filing an extension:

1. File on time even if you can’t pay. If you completed your return but you are unable to pay the full amount of tax due, do not request an extension. File your return on time and pay as much as you can. To pay the balance, apply online for a payment plan using the Online Payment Agreement application at www.irs.gov or send Form 9465, Installment Agreement Request, with your return. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options.
2. Extra time to file.  An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due.  You will owe interest on any amount not paid by the April 17 deadline, plus you may owe penalties.
3. Form to file. Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File US Individual Tax Return to the IRS. It must be postmarked by April 17, 2012. You also can make an extension-related credit card payments, see Form 4868.
4. E-file extension.  You can e-file an extension request using tax preparation software with your own computer or by going to a tax preparer who has the software.  You must e-file the request by midnight on April 17, 2012.  The IRS will acknowledge receipt of the extension request if you e-file your extension.
5. Traditional Free File and Free File Fillable Forms. You can use both Free File options to file an extension.  Access the Free File page at www.irs.gov.
6. Electronic funds withdrawal. If you ask for an extension via one of the electronic methods, you can also pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account.  You will need the appropriate bank routing and account numbers. For information about these and other methods of payment, visit the IRS website at www.irs.gov or call 800-TAX-1040 (800-829-1040).
7. How to get forms. Form 4868 is available for download from the IRS website or you can pick up the form at your local IRS office.

Buffington Pockets, Valley of Fire area, southern Nevada (Photo credit: Wikipedia)

It happens.  You do your best to prepare for the tax you’ll owe, but here it is, time to pay your taxes and you just don’t have the money.  The IRS recently published their Tax Tip 2012-64, which relates five tips when you’re faced with just this situation.  Below is the text of the Tip.

Tips for Taxpayers Who Can’t Pay Their Taxes on Time

If you owe tax with your federal tax return, but can’t afford to pay it all when you file, the IRS wants you to know your options and help you keep interest and penalties to a minimum.

Here are five tips:

1. File your return on time and pay as much as you can with the return.  These steps will eliminate the late filing penalty, reduce the late payment penalty and cut down on interest charges.  For electronic and credit card options for paying see www.IRS.gov. You may also mail a check payable to the United States Treasury.
2. Consider obtaining a loan or paying by credit card.  The interest rate and fees charged by a bank or credit card company may be lower than interest and penalties imposed by the Internal Revenue Code.
3. Request an installment payment agreement.  You do not need to wait for IRS to send you a bill before requesting a payment agreement.  Options for requesting an agreement include:
   • Using the Online Payment Agreement Application and
   • Completing and submitting IRS Form 9465-FS, Installment Agreement Request, with your return.
4. Request an extension of time to pay.  For tax year 2011, qualifying individuals may request an extension of time to pay and have the late payment penalty waived as part of the IRS Fresh Start Initiative.  To see if you qualify visit www.irs.gov and get Form 1127-A, Application for Extension of Time for Payment.  But hurry, your application must be filed by April 17, 2012.
5. If you receive a bill from the IRS, please contact the IRS immediately to discuss these and other payment options.  Ignoring the bill will only compound your problem and could lead to IRS collection action.

If you can’t pay in full and on time, the key to minimizing your penalty and interest charges is to pay as much as possible by the tax deadline and the balance as soon as you can.  For more information on the IRS collection process go to or see www.IRSVideos.gov/OweTaxes.

Error (Photo credit: pastorbuhro)

If you’re deep in the throes of preparing your tax return (as many are) you want to make sure that you avoid errors where possible.  The IRS recently published their Tax Tip 2012-58, which details some of the tax preparation errors often seen.  Following is the actual text of the Tip.

Eight Tax-Time Errors to Avoid

If you make a mistake on your tax return, it can take longer to process, which in turn, may delay your refund.  Here are eight common errors to avoid:

1. Incorrect or missing Social Security numbers.  When entering SSNs for anyone listed on your tax return, be sure to enter them exactly as they appear on the Social Security cards.
2. Incorrect or misspelling of dependent’s last name.  When entering a dependent’s last name on your tax return, make sure to enter it exactly as it appears on their Social Security card.
3. Filing status errors. Choose the correct filing status for your situation. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) With Dependent Child.  See Publication 501, Exemptions, Standard Deduction and Filing Information, to determine the filing status that best fits your situation.
4. Math errors.  When preparing paper returns, review all math for accuracy.  Or file electronically; the software does the math for you!
5. Computation errors.  Take your time.  Many taxpayers make mistakes when figuring their taxable income, withholding and estimated tax payments, Earned Income Tax Credit, Standard Deduction for age 65 or over or blind, the taxable amount of Social Security benefits and the Child and Dependent Care Credit.
6. Incorrect bank account numbers for direct deposit. Double check your bank routing and account numbers if you are using direct deposit for your refund.
7. Forgetting to sign and date the return.  An unsigned tax return is like an unsigned check – it is invalid.  Also, both spouses must sign a joint return.
8. Incorrect adjusted gross income.  If you file electronically, you must sign the return electronically using a Personal Identification Number.  To verify your identity, the software will prompt you to enter your AGI from your originally filed 2010 federal income tax return or last year’s PIN if you e-filed.  Taxpayers should not use an AGI amount from an amended return, Form 1040X, or a math-error correction made by the IRS.