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Estimate Tax Payment Rules For Individuals (Tax Estimate Payments Explained!) - YouTube
Channel: Money and Life TV
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this video we're gonna cover all the
rules all the must know rules when it
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comes to estimated taxes how's it going
Internet so good to see all of you my
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name is Mike the CPA and thanks for
tuning into money and live TV! this
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channel is all about learning about
finances investing taxes and more thank
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you everybody for continuing to support
the channel by leaving comments and
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dropping likes on the videos it really
helps things out so I really appreciate
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it
I have a lot of information I want to
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cover with you guys today so let's just
dive right into it now the handout that
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I'm holding in my hand here that I'm
kind of using as a script or a memory
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jogger it's completely free to download
so make sure to download it I'm gonna
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leave a link down in the description
section of the video and the comment
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section of the video Mike why should we
even care to learn about estimated tax
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payments man for tonight the play over
here can this really need to know well
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actually chipper it kind of is so pause
your fortnight yeah I know I just said
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pause for tonight and listen up so why
do you need to know about estimated tax
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payments and what they are well here's
the thing so an estimated tax payment is
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a way for you to keep current on your
taxes throughout the year especially
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when your withholdings are not enough
maybe in 2018 you want to file your tax
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return and you owed a bunch of money
with estimated tax payments you could
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have made up the shortfall throughout
the year so you didn't end up going in
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debt with the IRS if you couldn't pay
your taxes coming from 15th another
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reason to know about estimated tax
payments is let's say you're during the
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year you start doing a side hustle or
something that starts to generate a
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significant amount of money on the side
like your own business let's say you
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make another five ten thousand fifteen
thousand during the year that you didn't
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expect to make but you didn't pay you
you didn't have any tax withheld on that
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money well it s estimated tax payment is
a way to keep current on your taxes so
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you don't get stuck with a huge tax bill
come your end if you end up owing in a
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nutshell estimated tax payments will
help you stay out of debt with IRS and
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keep you out of trouble with the IRS
I really wish this stuff was taught in
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school so estimated tax payments are
great when you
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trying to keep current with your taxes
on income that is not currently subject
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to tax withholdings what are some
examples some examples include
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self-employment income interest
dividends alimony rent like from a
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rental property your pension although
you can choose to have money withheld
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from your pension checks capital gains
prizes award things like that wages are
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not on this list because wages are
subject to withholdings but we're gonna
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come back around to that in just a bit
of why you still might use estimated tax
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payments even if your only income is
wages so what happens if you don't make
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estimated tax payments when are you
supposed to make estimated tax payment
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how do you even know nobody teaches you
this stuff so if you don't pay enough
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taxes in on your income throughout the
year this is what can happen if you do
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not pay enough by the due date of each
payment period you may be charged a
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penalty a tax penalty even if you are
due a refund when you file your tax
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return so what the IRS does is they take
a broad look at your income and they
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analyze it then they kind of break it
down by quarter and they look at how
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much taxes withheld based on you know
when you paid it and how much income you
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made during those different quarters and
if you didn't keep current enough in
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each quarter or in each time period they
might charge you a penalty a tax penalty
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for that particular quarter this isn't
an issue for most people for most people
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it's not an issue you'll never see it
but for people who are making hundreds
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hundreds of thousands a year two hundred
thousand or more or have a side business
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that's where these penalties can come
into play now let's talk about who has
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to pay estimate the tax famous or when a
person has to pay them a a person who
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expects to oh at least one thousand
dollars at the end of the year after
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withholdings and refundable credits are
taken into consideration
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B a person's withholdings and refundable
credits will be or when they're less
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than 90 percent of the projected tax for
the year or see a person's withholdings
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and refundable credits if they're going
to be less than one
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percent of the tax shown on their prior
year return and I put a note here please
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note there are special rules for farmers
and fishermen see publication 505
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so just to recap if you're gonna owe if
you expect to about a thousand bucks
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after all of your withholdings and
credits that's when you're gonna have to
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pay if you've paid in less than 90
percent of your tax for the total for
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the year that's when you might have to
pay estimates or if you haven't paid in
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at least 100 percent of the total tax
shown on your last year's return which I
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have an example on screen and just to
clear things up guys
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when it's what's called estimated tax
payments because it's truly an estimate
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an estimate payment means you don't need
to be 100% precise if you're subject to
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these but you should try to be as
accurate as possible to keep current
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with your taxes so you don't owe a bunch
of money to the IRS come April 15th of
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the following year but don't stress
about the exact dollar amount of the
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estimate relax it's just an estimate we
just talked about who has to pay
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estimated tax payments now let's talk
about who does not have to pay estimated
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tax payments or when do you not have to
worry about them a person does not have
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to pay estimated tax payments win a
person who expects to owe less than
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$1,000 or more after subtracting income
tax withholdings and refundable credits
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from their estimated total projected tax
a person's withholdings and refundable
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credits will be at least 90 percent of
their tax for the year so they paid in
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they've already paid in 90 percent of
their taxes for the year so they don't
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have to make SMS Nick's a person's
withholdings and refundable credits will
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be at least 100 percent of the tax shown
on their prior year return a person has
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no liability in the previous year are no
filing requirement so if you didn't know
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any tax at all last year if you have no
filing or if you've had no filing
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requirement you probably don't have to
worry about estimates at all and like
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like I said ladies and gentlemen for
most people this is not an issue but if
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you have other forms of income outside
of wages like your interest your
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dividends your business income from your
side hustle because you're hustling out
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there like so many of us out there today
well then then you might need to pay a
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little bit closer attention to ask them
tax payments or or if your withholdings
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if you've when it came to 2018 you file
your tax return now you know and I know
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that in 2018 tax laws got a lot
different than they used to be so a lot
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of people who normally didn't owe tax
started to owe tax and all they had was
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wages so if your wages if your if you
all do you make his wages wage income
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and you still owe a bunch of money you
might want to take a closer look at
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these estimated tax payments if you have
not already corrected your withholdings
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so for example let me give you guys an
example so let's say in 2018 you file
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your tax return you were expecting a
refund but all of a sudden you're like
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what the deuce are you owe a bunch of
money let's say you owe $2,000 when you
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went to file your tax return so how do
you avoid that going forward well you
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can do one of two things one you can
adjust your withholdings or two you can
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make estimated tax payments if you
didn't want to tinker with your
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withholdings what you would do is you
come over here with your estimated tax
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payments and you could make four
payments
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let's say you're gonna owe two thousand
bucks okay that's what you would expect
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- Oh again the next year well what you
can do is you can make four payments of
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$500 each of every quarter so you
there's there's payment due date since
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we're gonna talk about in just a second
but you could make $500 payments
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throughout the year for different times
so that when it rolled around to April
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15th
you wouldn't Oh or you would owe very
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little and that way you could keep
current on your taxes but not stress
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about changing your withholdings and
going through all that rigor oh I have
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videos on tax withholdings if you want
to learn more I'll link all those videos
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down below now here are the estimated
tax payments due dates just so you guys
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know for the period of January 1st
through March 31st of each year the
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payment due date is actually April 17th
or April 15th though which is the same
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day your tax return is due for the
period of April 1st through May 31st
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that's not a full three months right
that's just two months your payment due
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date is June 15th for the period of June
1st through August 31st your payment due
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date is September 15th and for the
period of
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member 1st through December 31st your
payment due date is January 15th of the
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following year so they even though the
year is gone the year passes you by they
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still allow you to tell January 15th to
figure out your final estimate payment
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to give you a little bit of additional
time to figure out your taxes I'm page
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34 or 59 the publication 505 you will
find a worksheet that can help you
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calculate your estimated tax I'm not
going to do a step-by-step calculation
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in this video because it would be far
too time-consuming but I will show you a
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trick of how to do a quick estimate of
your taxes now here's the quick and
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dirty way guys the quick and dirty way
that sounds really bad ok so assume a
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person's starting a business this year
and they expect to make a net profit of
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$5,000 by the end of the year notice I
said net profit for further
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simplification let's say that person
makes a net profit of one thousand two
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hundred and fifty dollars per quarter
one thousand two fifty times four is
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five thousand by March 31st they've
received their first net profit of one
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thousand two hundred fifty dollars on
their business so now what do they do
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there has been no tax withheld on this
money so they should probably consider
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making it an estimated tax payment to
keep current with their taxes a really
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quick and easy way for a person to
determine how much to pay on this new
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income is just take a look at what their
average tax rate is or they can look at
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their marginal tax rate or their
effective tax rate either one
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now the average American their average
tax rate is anywhere from 15 to 25
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percent on average so even if you didn't
want to go look at your own marginal tax
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rate if you this said okay well I don't
want to look at that
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but I'm gonna pay at least twenty five
percent of that net profit in as a
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federal estimated pack payment so they
would take $1,250 times twenty five
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percent is that a perfect science
absolutely not but at least they're
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paying some taxes in throughout the year
to make sure they're on track they would
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want to look at it a little bit more
closely than that
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but if you wanted to be be safe and at
least pay something in without trying to
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figure out the exact numbers you could
just say well I'm gonna pay in of that
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net profit for that quarter I'm gonna
pay in fifteen percent of that or I'm
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gonna pay in twenty percent of that or
twenty five percent of it thirty percent
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I think you guys get the idea but that's
a really quick and easy thing you can do
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and that way you're not stressed about
trying to calculate it to the T now in
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this video I'm not gonna cover how to
make an estimated tax payment because
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I've already developed a full video on
that I've I have one of the most
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detailed videos on the entire internet
it's completely free of how to make
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estimated tax payments click this little
cart icon up here when you see it pop up
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and if you I will take you straight to
the video and I show you two to three
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different ways of how to make an
estimated tax payment there are also
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detailed instructions of how to pay your
estimated tax payments that are located
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in publication 505 now earlier on we
were talking about penalties and tax
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penalties so how do you avoid it what
what are some things you can do to make
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sure you don't get hit with any tax
penalties at all because I don't want to
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see the IRS any more of my money if your
income is under seventy five thousand if
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you're a single filer and if you're or
if your income is under a hundred and
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fifty thousand if you file married
filing joint here's what you need to do
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to avoid penalties you have two
different options here two options one
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you can pay in at least ninety percent
of your current year's tax of what you
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would expect Oh make sure make sure your
if you were to add up your withholdings
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from your job
your estimated tax payments that it
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would equal at least 90% of your current
year's tax that's the first way the
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other thing you could do is you can plop
pop on over and take a look at your
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previous year's tax return so we're in
2019 when I'm filming this so in you
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would look at your 2018 1040 find the
line that says total tax the line that
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says total tax that's what you will look
at and you want to make sure in 2019
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you've paid in at least 100 percent of
what your total prior year tax was by
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doing that you're gonna be able to
easily avoid those pesky underpayment
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tax penalties okay so that was if your
income was under seventy five thousand
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or if your income was under a hundred
and fifty thousand if married filing
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joint what happens if your income is
over those amounts if your income is
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over 75k if you're single if your income
is over one hundred fifty K if you filed
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married filing joint here's what you
need to do to avoid underpayment
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penalties pay in at least one hundred
percent of the current year's tax so
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when you go to add up all those
withholding so far for the year from
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your paycheck and you all add up all the
estimated tax payments you made
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throughout the year you need you would
wanted to have paid in 100% of the
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current year's projected tax that's the
option one the other way is once again
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we go back to the previous year's tax
form look at the line that says total
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tax we're looking at the same line again
but now since your income is higher
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instead of you paying 100% of that prior
tax now what you would need to do to
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avoid penalties because you're a higher
income earner is you need to pay 110
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percent of your total tax liability when
you add up your withholdings fluster
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estimated payments they need to equal
one hundred and ten percent of your
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previous tax year's liability now you're
probably saying well Mike you know this
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information is great at all but but but
dude III don't know how
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project my tax I have no idea and I
totally understand that because I know
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that you know probably like 95 99
percent of the population they're not
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accountants and I totally understand
that so what you can do to help you
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easily figure out what's your total
projected tax for the year might be is I
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want you to pop on over to the IRS
website I'm gonna leave a link to the
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with the IRS withholdings calculator
page and what you can do is you can drop
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in your projected income numbers for the
year and see what's your projected total
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tax liability will be that's an easy way
to do it I have videos to help you
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project your income for the year I can
leave links to that below I have and I
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also have a video that does a full
walkthrough of the IRS withholdings
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calculator in some ways to analyze it
takes a little bit of time to do some
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self-study on this stuff but once you
learn how to do it it's gonna be you're
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gonna find it's fairly easy to do the
other thing you can do is there's also a
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bunch of free tax calculators online I
could leave some links to some down
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below and the third thing you can do to
help you project your tax on your
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earnings for the year is you can if you
have let's say you use TurboTax or H&R
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Block tax off for last year we'll see if
you can pop into your tax return and
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create a dummy return and drop in your
current income numbers are what you
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would expect to make by your end from
your wages interest dividends your
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business income pension whatever drop
those numbers in prepare a fake tax
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return because from 2018 to 2019 the
rules haven't changed that much so it's
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almost like it will almost be identical
to 2018 so that's that's another way you
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could figure out what your total tax
liability might be come the end of the
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year okay ladies and gentlemen thanks
for if you stuck with me this far I
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really appreciate it thank you for
sticking with me I am like I said the
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handout is free to download in the next
videos of this series what I'm gonna do
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is I'm gonna show you how to project
your estimated taxable income throughout
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the year I have a new worksheet I'm
really excited I think it's gonna teach
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you a lot about how income taxes work
probably more than anything you've seen
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before I'm really excited about
producing that video I'll be producing
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that video within the next few weeks and
I'll have a free Excel worksheet
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you can download to help you project
your income help you figure out your
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estimated taxes and all that that we'll
cover in the next video and these of
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course are the must know rules when it
comes to estimated tax payments that are
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really hard to find but I've summarized
what I felt were the most important
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things for you guys to know about right
here if you guys enjoyed the video today
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let me know my crushing that like button
feel free to share this with a friend
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especially if you have friends who are
business owners if they have different
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types of income like investment income
income from their pensions and things
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like that I think they're gonna find
these rules really helpful to know
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because everybody should know that there
is an alternative way to keep current on
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their taxes without messing with or with
holdings and that is through estimated
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tax payments feel free to subscribe to
the channel if you haven't already I'm
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gonna have a lot more tax videos videos
around investing and finances throughout
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the year and I think you're gonna get a
lot of good information out of them you
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can subscribe to the channel by hitting
that red subscribe button down below and
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make sure you hit that Bell notification
icon that's gonna let you know whenever
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I release a new video I tried to release
a new video at least once per week and
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sometimes I release an additional video
on Wednesdays alright guys thanks for
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letting me talk your ear off on
estimated tax payments leave your
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questions your comments and all that
good stuff down below I look forward to
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reading them as always have a great week
and use this information to live your
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life on Kage I love you all peace
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