By now, you’ve already filed your income tax return, or at least thought about it. Did you have to pay more with your return, or do you think you will?
If all your income comes from wages, chances are that your tax withholdings will cover your income tax liability. But if you own a business or receive other income, such as interest, dividends, capital gains, or rent, you may need to make income tax payments.
Not comfortable with DIY tax planning and preparation? Consult a qualified tax professional. Want to figure it out on your own? Make sure you follow these three steps:
1. Know the Required Tax Payments
Generally, you must make tax payments for 2016 if you expect to owe at least $1,000 in taxes. You must make estimated tax payments if you expect your withholding and refundable credits to be less than either 90% of your 2016 tax liability or 100% of your 2015 tax liability, whichever is lower.
2. Avoid Penalties
Penalties are assessed if you do not make the required payments throughout the year, as income is received. The IRS will assess penalties in the form of interest applied to the underpaid amount. Interest accrues daily from the date the tax was due and until it is paid. The IRS’ current interest rate on individual taxpayer underpayments is 3%.
3. Get Help from the IRS
The IRS has free help for you to pay on time. Employees can figure their 2016 federal income tax bill by using the IRS Withholding Calculator, at http://1.usa.gov/1S0WFdK. Business owners and investors can find more tax information in IRS Publication 505, “Tax Withholding and Estimated Tax,” at http://1.usa.gov/1PO6ltI. States and the District of Columbia also have information about withholdings, estimates, and underpayment penalties their websites.