Please remember the FINAL estimated tax payment (for the 2010 tax year) for Individuals or Entities is due by January 18, 2011.
Estimated Taxes
Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.
Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
Who Must Pay Estimated Tax
If you had a tax liability for 2009, you may have to pay estimated tax for 2010.
General Rule
You must pay estimated tax for 2010 if both of the following apply:
- You expect to owe at least $1,000 in tax for 2010 after subtracting your withholding and credits.
- You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your 2010 tax return, or
100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.
Note: These percentages may be different if you are a farmer, fisherman or higher income taxpayer.
Sole proprietors, partners, and S corporation shareholders – You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax.
Corporations - You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Use Form 1120-W, Estimated Tax for Corporations (PDF), to figure the estimated tax. You must deposit the payments. For additional information, refer to Publication 542, Corporations.
Who Does Not Have To Pay Estimated Tax – If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to take more tax out of your earnings. To do this, file a new Form W-4 (PDF) with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.
Estimated tax not required: You do not have to pay estimated tax for 2010 if you meet all three of the following conditions:
- You have no tax liability for 2009
- You were a US citizen or resident for the whole year
- Your 2009 tax year covered a 12 month period
You had no tax liability for 2009 if your total tax was zero or you did not have to file an income tax return. For additional information on how to figure your estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax. Estimated tax requirements are different for farmers and fishermen. Publication 505, Tax Withholding and Estimated Tax, provides more information about these special estimated tax rules.
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