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Tax Tips - Save on Taxes

Estimated Tax Payments

Here's what you need to do each quarter:

  1. Income
    Add all of the income (i.e., cash, checks, credit card payments, etc.) that you received during the quarter.

  2. Expenses
    Add all of the business expenses that you incurred during the quarter. You may ignore your vehicle mileage and Depreciation expense for now.

  3. Net Income or (Loss)
    Subtract your Expenses from your Income; the result is your Net Income. If the result is a negative number (i.e., a “Loss”), you can stop here; you won’t need to make any Estimated Tax Payments for this quarter.

  4. Calculate your Estimated Tax Payments
    Calculate your 3 required Estimated Tax Payments:

    1. Federal Income Tax
      Multiply your Net Income by 15%. This is the amount of Federal estimated income tax that you will pay. (If you expect that your annualized self-employment compensation will be more than $125,000, multiply by 25% instead)

    2. Federal Self-Employment Tax
      Multiply your Net Income by 15.3% (i.e., Social Security tax of 6.2% plus Medicare tax of 1.45%, times two – once for yourself as the employee, the second time for yourself as the employer). This is the amount of Federal self-employment tax that you will pay. (If you received only alimony income, you can skip this step)

    3. State Income Tax (Massachusetts residents only)
      Multiply your Net Income by 5.1%. This is the amount of State estimated income tax that you will pay.

  5. Payment Due Dates

    Estimated Tax Payments are not due at the same time each Quarter. Here is the schedule of the payment due dates: Quarter. 

    Quarter

    Dates Included

    Due Date

    1 Jan. 1 to March 31 April 15
    2 April 1 to June 30 June 15
    3 July 1 to Sept. 30 Sept. 15
    4 Oct. 1 to Dec. 31 Jan. 15 (of the following year)


  6. Make Your Estimates Tax Payments
    You may pay your Estimated Tax Payments online, or you may mail a check to the respective tax authority.

    1. Federal Income Tax
      Add the amount of Federal income Tax and Federal Self-Employment Tax that you had calculated in Steps 4a and 4b above. This is the total amount of Federal estimated tax that you will pay.

      To make your Federal Estimated Tax Payment online through a direct debit from your checking or savings account at no cost to you, please visit IRS Direct Pay at this website: https://www.irs.gov/payments/direct-pay

      To make your Federal Estimated Tax Payment by mail, make a check payable to "United States Treasury" in the amount of the Federal estimated tax, write your SSN and "201X Form 1040-ES" (replace “X” with the last digit of the year) on the front of your check, and sign it. Mail your check along with the corresponding Form 1040-ES to the address printed on the form.

    2. State Income Tax
      To make your State Estimated Tax Payment online through a direct debit from your checking or savings account at no cost to you, or with your American Express, Discover, MasterCard or VISA credit card plus an additional convenience fee of 2.30% of the amount of your payment, please visit MassTax Connect at this website: https://mtc.dor.state.ma.us/mtc/_/#2

      To make your State Estimated Tax Payment by mail, make a check payable to "Commonwealth of Massachusetts" in the amount of the State estimated tax, write your SSN and "201X Form 1-ES" (replace “X” with the last digit of the year) on the front of your check, and sign it. Mail your check along with the corresponding Form 1-ES to the address printed on the form.


Tax Tip:

Make your 4Q Mass. estimated tax payment during the last week of December, instead of on Jan. 15. This will allow you to deduct that one payment on the current year’s Federal income tax return. (There is no tax benefit for making your 4Q Federal payment any earlier)

I would be happy to prepare a complete set of pre-filled-in Federal Form 1040-ES and Mass. Form 1-ES forms or N.H. Form DP-10 forms, for you to use to make your quarterly estimated tax payments.

 

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