Why make estimated tax payments when they’re not required?
Even if you’re not worried about IRS penalties for underestimating your taxes, it’s often a good idea to make estimated tax payments when they’re not required.
Why?
- Avoiding penalties is a good thing (!) which will save you both stress and money. But there’s no guarantee that you won’t get hit with a big tax bill when you file your return. Especially if your situation this year is significantly different from last year (e.g. you started your business, got married, got divorced, have fewer dependents).
- Another reason for making estimated tax payments is that it’s usually easier on your budget and cash flow (and therefore less stressful) to “pay as you go!”
- Changes in tax laws from one year to another can significantly affect your Federal income taxes and influence your decision about whether to make estimated tax payments. A recent example of this is the Tax Cuts & Job Act of 2017 (TCJA), a long and complex piece of legislation which made the most massive changes to the US tax laws in about 30 years.The IRS revised the payroll tax withholding tables on January 11, 2018 and employers and payroll services were expected to implement them by February 15th. No guarantee that they did, no penalties if they didn’t. Later, IRS revised Form W-4 and updated their withholding tax calculator. Remember (or review here) that your withholding amounts are critical to the calculation of whether you’ll be subject to estimated tax penalties.
For a free cheat sheet on estimated taxes, click here.