Why do i have tp pay estimated tax?

Question

Why do i have tp pay estimated tax?

Answer 1

Basically the IRS wants to make sure they get their money on time and that you will be able to pay it.  If you owe more than $1000 at tax filing time, you may owe an underwithholding penalty (with a few exceptions) and withholding for 1099 income may become manditory.

Normally someone with wages has tax withheld automatically, but if you are self employed, independent contractor, or have other income with no withholding, you need to pay estimated tax if you would owe more than $1000 for the year at the end of each quarter.  Those are the rules.

Answer 2

Read about self employed tax filing: http://taxipay.blogspot.com/2008/04/tax-...

Answer 3

First off you don't have to make estimate tax payments.  However, at the end of the year if you haven't paid in any tax or too little tax the IRS will assess penalty and interest per quarter.  I have clients that pay in estimated tax payments and some that don't and fork up the extra cash.  If you are self employed, it's probably a good idea to pay something in every quarter, also think about self employed profit sharing,IRAs to reduce your tax liability.  There are alot of ways to lowering your tax liability, talk to a local CPA for help.

Answer 4

The US tax system is a pay as you go system.  If you are an employee, taxes will be deducted from your paycheck.  If you are self employed, you are required to make quarterly payments if you will owe $1000 or more for the year.  If you don't make the estimated payments, and just pay what you owe when you file your return, you can end up owing penalties along with the tax.