Tax & Business Alert – December 2023 Tax & Business Alert
– December 2023
258 words
Abstract:
Self-employed individuals, and those with income from interest, rent,
dividends and other sources, generally must pay estimated tax payments
throughout the year. Mishandling these payments could trigger penalties. This
brief article offers three strategies for getting it right, and a reminder that
the next due date for estimated taxes is coming up fast: January 16, 2024.
3 strategies for
handling estimated tax payments
Many individuals today are
self-employed or generate income from interest, rent, dividends and other
sources. If you’re in this situation, you could be risking penalties if you
don’t pay enough taxes during the year through estimated tax payments and
withholding.
Note: The due date for the final
estimated payment for 2023 is January 16, 2024.
Here are three strategies to help you pay
enough taxes and avoid underpayment penalties:
1.
Know
the minimum payment rules.
Your estimated payments and withholding must equal at least:
2.
Use
the annualized income installment method, if eligible. This method often benefits taxpayers
who have large variability in income by month due to bonuses, investment gains
and losses, or seasonal income — especially if it’s skewed toward year end.
Annualizing calculates the tax due based on factors occurring through each
quarterly estimated tax period.
3. Estimate your tax liability and
increase withholding if possible.
If you find you’ve underpaid your 2023 taxes, consider having the tax shortfall
withheld from your salary or year-end bonus by December 31. Withholding is
considered to have been paid ratably throughout the year, so this could allow
you to avoid penalties, whereas trying to make up the difference with a larger
quarterly tax payment could trigger penalties.
Estimated tax payments can be tricky.
Please contact us for help.
© 2023