Estimated Taxes: Avoid Penalties
T. Jayden Doye, CPA
Helping Law Firm Owners Reach New Heights, Catch More Flights & Pay Less To The IRS | Speaker | #1 Best Selling Author
For lawyers and law firm owners, understanding estimated taxes is essential to maintaining financial stability and avoiding costly penalties. With fluctuating income streams from self-employment, dividends, or other sources, knowing how to calculate and manage these quarterly payments is critical.
Here’s a comprehensive guide to help you navigate estimated taxes effectively.
What Are Estimated Taxes?
Estimated taxes are periodic payments made throughout the year to cover federal taxes on income not subject to withholding. The U.S. tax system operates on a "pay-as-you-go" basis, which means you must pay taxes as income is earned or received.
Examples of Income Requiring Estimated Taxes:
Legal Scenario: A solo practitioner earning inconsistent income from client retainers and settlements must make estimated tax payments to avoid penalties for underpayment.
Who Must Pay Estimated Taxes?
You are required to pay estimated taxes if:
Important Considerations for Lawyers:
Who Is Exempt from Estimated Taxes?
You may be exempt if:
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Example: A lawyer working part-time for a firm with proper tax withholding on their wages may adjust their Form W-4 to avoid estimated taxes for supplemental self-employment income.
Key Dates for Estimated Payments
The IRS requires quarterly payments based on the following schedule:
Reminder: If the payment due date falls on a weekend or holiday, it moves to the next business day. Ensuring timely payments helps avoid unnecessary penalties.
Avoiding Penalties and Why It Matters
To avoid underpayment penalties, ensure you:
Special Circumstances: Penalty waivers may apply if you experienced unforeseen events, such as:
Get Ahead of Tax Deadlines
Navigating estimated taxes can be complex, but timely action can save you money and stress. Whether you’re just starting to handle estimated taxes or need a better strategy, we’re here to help. It’s not too late to catch up on this year’s payments or prepare for the next tax season.
Book your free consultation with Prestige Accounting and Consulting today to create a personalized tax plan that works for you.
Certified Public Accountant & Financial Consultant/Planner at Mason J. Krangle, CPA, PFS, MBA, ChFC, CGMA | Licenced in Colorado & Utah | 20+ Years Experience.
2 个月Good information. Many taxpayers are not aware that penalties can still be accessed for late payment of estimated taxes even though the amount of the estimated payment is sufficient. The "key" is to properly estimate what is owed and pay on time each quarter.