How to Avoid the Estimated Tax Penalty in 2022 - YouTube

why should you never ask a dog for an estimate  on your taxes because it's always rough  

hey guys today we're talking about the estimated  tax penalty because it's a sneaky penalty  

and most people don't even realize what it is and  it can cost you thousands and thousands of dollars  

as your income increases and of course  we want to do everything that we can to  

make sure that we're minimizing your tax  liability so in this video we're going  

to talk about everything you need to know  about the estimated tax penalty stay tuned  

hey i'm shawn with life accounting the accounting  firm that saves people from high taxes and poor  

profits and one of the ways that we help people  is making sure that they avoid the estimated  

tax penalty now some people see this on their tax  return every year and just think that it's another  

required payment to the irs but the estimated tax  penalty is something that you do not need to pay  

and can be completely avoided so right now we're  going to explain what you need to know about the  

estimated tax penalty so you can start saving  more on your annual tax returns also i'm going  

to show you what you need to know to calculate  and pay your federal estimated taxes but before  

i dive in if you like business growth profits  and you learn just one thing from this video  

would you please consider liking and subscribing  to our channel okay now let's go ahead and start  

out by defining what is an estimated tax payment  so if you're self-employed then generally you're  

required to pay your taxes four times a year  what sean you mean i have to pay my taxes  

four times instead of one oh no man no way i'm out  now hold on your total tax liability won't change  

but rather you need to split it up and just make  some more payments so say for example your tax  

liability last year was ten thousand dollars  so if you expect your liability to be the same  

this year then you'll take that ten thousand  dollars divide it by four and pay twenty five  

hundred dollars four times throughout the year  now the reason is called estimated tax payments is  

because you're estimating how much income you're  gonna make this year and then paying taxes on that  

amount so another popular question is do i have  to make these estimated tax payments so if you  

fell under a business classification like a sole  proprietorship a partnership a s corporation or a  

self-employed individual and you owe more than one  thousand dollars in taxes then in general you will  

need to make quarterly payments to the irs but if  you're simply a w-2 employee then generally you  

don't need to make any estimated tax payments  because your employer will handle those tax  

payments for you but if you're doing any kind of  business whether you're doing some freelance stuff  

some contractor stuff or you're self-employed  then you're likely going gonna make some tax  

payments however there are three super specific  instances where you may not need to pay any  

estimated tax payments and so you must meet these  three requirements all together number one you  

didn't owe any taxes in the previous tax year  and you were not required to file a tax return  

number two you were a u.s citizen or resident  for the entire year and number three your tax  

year was at least 12 months long so as long  as you meet these three requirements then you  

can completely avoid the estimated tax penalty  but that is a very small percentage of people  

who will actually qualify okay so now that we know  what estimated tax penalties are and who has to  

pay the next question usually is when are they due  so as we already explained tax payments are due  

four times a year and usually is due on the  15th of the next quarter so in the beginning  

of 2020 the schedule was set up like this for the  period of january 1st to 31st the quarterly tax  

payment was due on april 15 2020 for the period of  april 1st to may 31st the payment was due june 15  

2020 for the period of june 1st to august 31st  the payment was due on september 15th and for  

september 1st to december 31st the payment is  due january 15 2021. now it's a smart idea to  

put some of these due dates in your calendar  so you can make these payments on time or even  

a little bit before but as of right now they've  only extended two out of the four estimated tax  

payments due dates and i'm gonna put on the  screen what the schedule looks like right now

okay so we understand what estimated tax payments  are we know who has to pay them and now we know  

when they need to be paid okay okay sean that  makes sense so exactly how much are we talking  

here how much do i have to pay okay so let's get  to that of course this is going to be different  

for everyone but i want to spend some time  breaking down the map as simply as possible now  

to illustrate we're going to make up a fictional  person who we're just going to call jimmy and  

jimmy is a sole proprietor who would like to  determine his estimated quarterly tax payments  

based on his income and his self-employed taxes  so step number one for jimmy is to estimate his  

taxable income for the year so let's say that  jimmy estimates that his revenue will be a  

hundred thousand dollars this year but with that  revenue comes some expenses so let's say that he  

has thirty thousand dollars in deductible expenses  so jimmy's gross income would be seventy thousand  

dollars but jimmy also qualifies for the standard  deduction which is twelve thousand and two hundred  

dollars so jimmy's total taxable income is 57 800  so that's how jimmy will come up with his total  

taxable income for step number one which by the  way if you want to learn more about small business  

tax deductions then make sure you watch my video  linked above step number two is to calculate  

your income taxes so here you want to start by  multiplying your taxable income by this year's  

tax bracket and here they are for 2020 so is a  single filer and an income of fifty seven thousand  

eight hundred dollars he's going to go up to the  22 percent tax bracket and pay about 7518 dollars  

in taxes and here's the math on that now you can  move on to step number three which is to calculate  

your self-employment taxes because jimmy earned  more than 400 dollars this year and he will have  

to pay self-employment tax to do this first you  need to calculate your self-employment taxable  

income so you need to take your total income which  in this example is a hundred thousand dollars  

and then you need to multiply your total  income to get a small deduction at 92.35 to  

get your self-employment taxable income so jimmy's  self-employed taxable income is 92 350 next you  

need to multiply this by the self-employment tax  rate which is 15.3 percent which gives you 14 129  

and 55 cents once you get your self-employment  tax then you're ready to move on to step number  

four which is to add it all together and divide  by four so you want to take what we calculated  

in step number two which was the federal tax and  add it to what we calculated in step number three  

which was the self-employment tax so jimmy will  add seven thousand five hundred and eighteen  

dollars plus fourteen thousand one hundred and  twenty nine dollars to get a total estimated tax  

of twenty one thousand six hundred and forty seven  dollars he then would abide that by four to get an  

estimated quarterly tax payment of five thousand  four hundred and eleven dollars and seventy five  

cents now that's all the math okay sean okay i  i followed you that was tough but i followed you  

now what if somehow some way i get the math wrong  what happens then so remember this whatever that  

you overpay in taxes the government will send you  a refund for that amount now of course you want  

to be as precise as possible so you can save your  money and spend it or invest it into other things  

and if you underpay in taxes there's about a 10  percent buffer but you could wind up spending  

a little bit more money in estimated tax payments  now paying the irs have gotten super easy over the  

years and i'm gonna hop on my computer to show you  exactly what you need to do all right i'm on my  

computer now and i just want to walk through how  to make a quarterly estimated tax payment so the  

first thing you want to do is go to your browser  and go to irs.gov now in general irs.gov has a lot  

of useful information about taxes and policies  but for your quarterly estimated tax payments  

you'll go to this sub menu item that says pay  and then you have a few different options of  

how you can pay and i'm just going to select  bank account for this example and then here  

you want to go ahead and click on make a payment  and then from here it's pretty straightforward  

you follow the prompts on the screen um just  make sure and the reason for payment you're  

clicking on estimated tax all right and then you  make sure you're selecting the correct tax year  

and normally most people are just going to have  a 1040 so yeah they don't even allow you to check  

to select anything else simply because that's all  you can do when making an estimated tax payment  

and then from here you want to  verify your identity you'll put  

in your specific information of course i i  won't show all of this information on camera so  

i'm just going to pause the screen here for  just a second put in some of my information  

and show you guys what the next screen looks like  now once you complete step number two you'll get  

to step number three here which is going to  ask you for some of your payment information  

uh the amount that we just calculated will be  entered here the date that you want to enter  

it and then your account information and  your email address for the confirmation so  

um that's it for step number three i'm not going  to actually go any further here because i don't  

want to make a payment to the irs right now but  in step number four it's a little bit more of the  

same you're going to enter and enter in some of  your specific information and it's going to give  

you some next steps after that so that's it guys  that's as easy as it is to make a payment after  

you've calculated your estimated tax payment so in  conclusion the estimated tax penalty can be a pain  

but completely avoidable if you follow the steps  in this video and if you need help fouling your  

business taxes then you're in luck because  that's exactly what we do at life accounting  

you can visit our website in the description  below fill out the contact form on our website  

schedule a meeting and we'd be happy to  help and wow look at that you made it to the  

end of the video thank you so much for watching  and if it brought you any value please like  

subscribe and tell us in the comment section below  we really want to know if we're putting out some  

good information to the youtube universe so all  your feedback is greatly appreciated well that's  

it for this video i'm shawn thanks for watching  and i hope to see you again in our next video you