In the United States every taxpayer is subject to a “pay as you go” system. This means that we all have to pay our taxes in increments throughout the year. As we earn money, we are responsible for paying the government the correct tax on that income.
Different “Pay-As-You-Go” Paths
Many of us don’t even realize that we’re part of a “pay as you go” tax structure because we don’t make the payments ourselves. Our employers withhold taxes from our paychecks, and then they pay the government on our behalf.
What happens, though, if you’re self-employed, if you work as an independent contractor, or if your receive other income (like rent or royalty income) that is not taxed? If an employer does not take taxes out of your paycheck, you become the party responsible for paying your taxes on a regular basis throughout the year.
How Often Do I Have to Pay?
The IRS usually requires quarterly tax payments. Don’t forget to also account for state and local taxes as well! While the rules vary from state to state, most states and municipalities also require regular tax payments throughout the year.
How Much Do I Have to Pay?
How much tax you need to withhold depends on your filing status. You can often use your previous year’s income to calculate how much you should pay each quarter (hence the term “estimated tax”).
If you underpay, you may face penalties come tax time. If you overpay, you’ll get a nice refund.
For assistance navigating the waters of estimated taxes, contact the team at Taxation Solutions, Inc. We are on hand to help clients in San Antonio and the surrounding area understand the tax code and make informed decisions to meet their tax liability. Call us today to set up an appointment!