Starting a calendar year is the perfect time to review your tax situation. You should be aware that if an employer is paying you, they will likely withhold taxes from your paycheck for resources like FICA and federal income tax, which means you probably won’t have too much additional tax owed.
However, other individuals or self-employed workers may owe quarterly Estimated Tax Payments to the IRS, depending on their income levels. To calculate your estimated tax payments for 2021, first determine whether you are considered a cash method or accrual method taxpayer. This has implications for how you go about filing quarterly tax estimates.
The main difference between these two categories is that cash method taxpayers can account for their deductions when they are paid. In contrast to the accrual method, taxpayers can only deduct expenses in the year they are used up.
For example, a cash method taxpayer would include any payments made toward their 2020 taxes within their fourth-quarter payment for 2021 tax liabilities. Therefore, many self-employed workers take deductions off their tax bill during an April sale if they have net income due.
On the other hand, an accrual method taxpayer would not include these tax credits or deductions since they were paid during the following calendar year. Since this might leave them susceptible to underpayment penalties, it’s best to speak with a tax professional about what your estimated payments should be.
If you need help learning how to make your quarterly payments, we can help. Let us prepare your tax returns and guide you through the filing process!
This year, your taxes may be a little more complicated than usual. You might have to calculate estimated tax payments for the first time, or you might need to file an amended return from last year. Jimenez Consulting and Tax Services can help you determine which route is best for you and how much money will go at this critical point in the 2020-2021 tax season.
We’re experts in Strategic Business Planning with 20+ years of experience navigating complex business situations that include accounting, taxation, financial, and human resources management services. So, we know what it takes to get through these tricky waters without risking penalties down the line. Let us take care of all those pesky calculations while you focus on other aspects of running your business.
Visit www.jimenezconsultingandtaxservices.com for more information.