There’s another sneaky tax deadline on April 18. How to avoid a penalty

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With a week left to file your federal taxes, it’s easy to overlook another sneaky deadline: the first quarter estimated tax payment due date.

If you have income from self-employment, small business, gig economy work, investments, and more, you must make a payment by April 18.

You must pay if you expect to owe $1,000 or more in taxes for 2022, according to the tax authorities. But estimated payments can reduce or eliminate penalties.

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“Everyone has to pay taxes,” said certified financial planner Bryan Hasling, a partner at Lodestar Private Asset Management in Alamo, Calif. “And the IRS strongly prefers that you pay them regularly throughout the year rather than wait until the last minute.”

The fastest way to make an estimated quarterly tax payment is to go through IRS Direct Pay or send money via your IRS online account. However, there are other options available listed on the IRS Online Payments webpage.

the late penalty is 0.5% of your balance owing, for each month after the due date, up to 25%.

If your employer withholds money from each paycheck, you can ignore estimated tax payments. But you can use the withholding tax estimation tool to make sure your employer takes enough.

You can avoid penalties by covering 90% of your 2022 taxes or paying 100% of your 2021 bill if your adjusted gross income is $150,000 or less. (You’ll need 110% of your 2021 bill if you earn more than $150,000.)

If you expect to earn similar income to last year, you can check your 2021 tax return for last year’s tax payable and divide that number into four quarterly installments.

Independent contractors are often paid at the end of large projects. And those deadlines might not match the IRS’ quarterly calendars.

Bryan Hasling

Partner at Lodestar Private Asset Management

Other scenarios that may require estimated tax payments could be selling property, cashing in investments — including cryptocurrency — or taking money out of inherited retirement accounts, he said. Olga Espiritu, CFP and President of Tree Of Life Wealth Advisory Group in Cooper City, Florida.

“These are things that people don’t typically face every year, and it might come as a surprise,” she said.

Reasons for Skipping Payments

However, there may be scenarios where filers deliberately ignore estimated payments, despite late fees, because they don’t have the cash or prefer not to deplete their savings, said Hasling of Lodestar Private Asset Management. .

“Independent contractors often get paid at the end of large projects,” he said. “And those timelines might not match the IRS’ quarterly schedules.”

Whether to make estimated tax payments can be less on the penalty and more on their cash flow, Hasling said.

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