There’s a tax deadline Monday. How to make sure you don’t botch it

Personal finance

Hero Images | Getty Images

Got some side income? Run a business? You’re facing a tax deadline today.

Individuals who pay the Internal Revenue Service every quarter must make their third payment for 2019 by Sept. 16.

The other deadlines for this year are April 15, June 17 and Jan. 15, 2020.

Taxpayers hoping to avoid an underpayment penalty from the IRS must pay at least 90% of taxes owed for a given year — or 100% of the liability from the prior year.

If your adjusted gross income on that year’s return exceeded $150,000, then you’re on the hook for 110% of the tax liability.

Though most 9-to-5 employees have these taxes withheld from each paycheck throughout the year, business owners and others who pay quarterly must hash out their estimated income and calculate what their tax load will be.

“When you calculate estimated tax, you come up for the estimate for the whole year and back out any withholding,” said Lisa Featherngill, CPA and member of the American Institute of CPAs’ personal financial planning committee.

“Then you want to make sure that three-quarters of what will be due is paid through September,” she said.

Income quirks

Tobias Titz | fStop | Getty Images

Unexpected sources of income can easily throw off taxpayers’ estimates, which is why they need to work closely with their accountant to figure out what they owe.

Take a year-end bonus. Even if you were to withhold taxes from your wages throughout the year, your holiday bonus may not be correctly withheld.

The IRS gives companies two options for dealing with employee bonuses.

They can withhold at a flat rate of 22% or they can fold the bonus into regular wages and withhold taxes from a worker’s full compensation.

“If the withholding on the bonus isn’t at the full rate, and you’re in a higher tax bracket, you will most likely owe taxes on that,” said Featherngill.

Here’s another tax surprise: your mutual fund in a taxable account.

These funds tend to distribute capital gains from selling underlying investments during the fourth quarter.

Your quarterly tax payments must factor in the resulting tax liability.

Paying what you owe

Not all taxpayers were properly withheld for 2018, which is when the Tax Cuts and Jobs Act went into effect.

The new law trimmed individual income tax rates, eliminated personal exemptions and nearly doubled the standard deduction.

That meant some taxpayers fell short of their liability for last year.

The IRS lowered the 90% tax liability threshold to 85% in January and then 80% in March.

More from Personal Finance:
How long it takes to improve your credit score
The next big question you must answer after you retire
Pick the best travel rewards card

Bear in mind that this change applies only to the 2018 tax year, so taxpayers will need to sharpen their calculations for 2019.

This summer, the IRS launched its new tax withholding estimator, a tool that helps you figure out the amount of federal income tax pulled from your paycheck.

This calculator also accounts for self-employment income, investment income and more.

Tailoring the amount of income taxes withheld from your pay can make the difference between being overwithheld and receiving a large refund — or being far underwithheld and owing the taxman.

Products You May Like

Articles You May Like

Some brokers game the system to scrub complaints from their records, report claims
Here’s how financial advisors help clients manage health-care costs in retirement
These stocks could be the biggest winners if the US completes this phased trade deal with China
Three before you leave — What to watch for Wednesday including Netflix, Bank of America earnings
Caregivers Of Medicare Patients: What To Know Before A Hospital Discharge

Leave a Reply

Your email address will not be published. Required fields are marked *