The majority of taxpayers are oblivious to the importance of estimated tax deposit payments. What are Estimated Tax Deposit Payments (EFTPS)? EFTPS payments are advanced payments on taxes expected to be owed on the earned income at the end of the year when the tax return is filed. The types of income subject to estimated taxes include self-employment income, K-1 income, rent, royalties and unemployment income. The fundamental rule is that if your employer is not withholding taxes from your income, then you are subject to estimated tax deposit payments. Basically, if your income is composed of anything other than W-2 income, then estimated tax deposit payments are even more likely to affect you!
Your EFTPS is based on 100% of the balance owed on the previous year's tax return or 90% of your estimated current year tax bill. The payments are divided into quarterly payments that are due on April 15, June 15, September 15 and January 15. If an individual fails to make their EFTPS, they can be subject to the estimated tax penalty on their tax return.
Everyone who has earned income should make their estimates during the year to avoid any balance due at the end of the year. The EFTPS has a heavier impact if you are seeking tax resolution with the Internal Revenue Service (IRS) for the back taxes owed.
1. If you are currently in an Offer In Compromise (OIC) or planning on submitting an OIC, you must be current with this year's EFTPS even though you have paid your last year's liability in full.
2. If your OIC is accepted with the IRS, you must file and pay all taxes by April 15. You do not qualify for extensions of any kind.
3. If you are currently in a payment plan or any other resolution, having additional balance due with the IRS for a current year may default your current resolution with the IRS.
A basic rule that Rajneet & the LifeBack team advise their clients with is, "The IRS is NOT going to work on your back taxes if you are going to incur future balances."
In conclusion, you must be current with your taxes regardless of a balance owed to the IRS or not. A missed estimated payment will result in penalties and interest. Failing to make quarterly payments may result in a balance due for other possible financial obligations which might hinder your ability to pay the taxes in full when due.
35.2 KB Views: 2