January 15 is the due date for the final estimated tax payment for 2015 taxes. I’ve had several clients ask questions about the “rules” regarding estimated tax payments, so here is an explanation.
The tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments.
If you are an employee you have withholding from your paycheck to cover your projected tax liability, If you are self-employed or have rental income, you might also have to pay estimated taxes. If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. This equates to paying interest at a low rate on the calculated underpayment.
The rule regarding paying estimated tax payments is that you try to cover at least 90% of the 2015 tax, or 100% of the tax shown on the 2014 return, whichever is smaller.
The most important reason to estimate and pay quarterly taxes is so that you don’t have an unexpected amount to pay on April 15. We want to help you avoid any surprises, so that you can plan your budget and set aside the money needed to pay your taxes. We are always available if you have any questions about paying your taxes.