A lot of people are unaware of the exact process by which they can calculate their federal taxes. In fact, every year several thousands of Americans get into legal trouble for being unable to pay their federal quarterly taxes on time. A crucial reason for this is that several people are unable to estimate the tax return amounts in a proper manner. In this article, you will learn about the simple and effective ways by which you can estimate your income tax returns.
Estimating the Income Tax Payment
In the event that you are employed, then you will need to pay an income tax about four times per annum in estimated payments, instead of paying it in a single lump sum. These taxes are known as “estimated” payments as it depends on the amount that you are estimating to earn through your income in the current year. You will be paying your taxes based on this estimate. If you want solutions about small business taxes, the must visit here https://taxfyle.com/small-business-tax-calculator.
Exceptional Cases
There are certain specific conditions when you are not required to pay any estimated quarterly taxes. These are as follows:
- You did not have any tax payments to make in the previous year and hence, did not have to make any estimated quarterly tax.
- You were a resident in the US for the whole year.
- You have a twelve month long tax year.
However, in case you do not meet any of these conditions then you will have to pay your estimated quarterly taxes.
Calculating the Estimated Taxes
In order to calculate your estimated income tax amounts, you need to follow these steps:
Step 1: Estimate the taxable income for the whole year
You will need to begin with your income tax first. You need to estimate the total amount that you will pay as income tax for the whole year. You may set an amount such as 90 thousand dollars as your expected income amount for the year, and then you will need to subtract from it all the above-the-line deductions which you may incur in the year. Thus, if these deductions are around fifteen thousand dollars, then your adjusted gross income would be seventy five thousand dollars. After this, you need to subtract the standard deduction for your tax return in the last year, which is about twelve thousand dollars. Thus, the total taxable income comes to $ 62,800.
Step 2: Calculate your income tax
Next, you will have to multiply the adjusted gross income by your income tax rate (according to the tax bracket for the current financial year). Remember that the tax brackets will change each year, hence you will need to consult and check the recent numbers. Depending upon your tax rates, at about 10 percent, the total estimated income tax for a year will come to be about $ 6000.
Step 3: Calculate your self-employment tax
Since, you have earned over four hundred dollars this year; hence, you will also have to pay up a self employment tax. In order to calculate this, you must multiply your estimated annual total income by 92.35 % – this will be the self employment taxable income. Then you will need to multiply this with 15.3% which is a combination of your social security tax and Medicare.
Because Stephanie earned more than $400 this year, she will also have to pay self-employment tax. To calculate self-employment tax, she first has to multiply her estimated total income ($90,000) by 92.35%—this is effectively her self-employment taxable income. She then multiplies this number by 15.3%, the self-employment tax rate. Where does the 15.3% come from? It’s the combination of Social Security tax (12.4%) and Medicare (2.9%). Together, they make up the 15.3% “self-employment tax” figure. Thus, the total amount will come to $12,000.
Thus, adding both the self employment tax and income tax, the total amount will come to around $ 22,000. This would be your total tax amount. You will have to divide this by 4 to get your quarterly estimated tax payment amount.
You can hire professional income tax return calculators to help you assess your income tax returns in a more efficient and quick manner. There are several good tools for calculating income tax that are available on the internet.
Conclusion
Income tax returns require a lot of technicalities which is why business owners prefer to hire professional tax calculators to assess their tax returns.
