Make an Estimated Tax Payment Now to Avoid Tax-time Shock

While official “Tax Day” doesn’t arrive until April 15, it’s not too late to make an estimate tax payment to avoid a tax-time shock in the months ahead.

The Internal Revenue Service advises employees — whose 2018 federal income tax withholding unexpectedly falls short of their tax liability for the year — that they can still make a quarterly estimated tax payment directly to the IRS.

However, don’t wait too long: the deadline for making such a payment for the fourth quarter of 2018 is Tuesday, Jan. 15, 2019.

Looking Ahead

Although the Tax Cuts and Jobs Act (TCJA; the tax reform law enacted in December) lowered tax rates for many individuals, it also nearly doubled the standard deduction and limited or discontinued many deductions, among many other changes.

The IRS reports while most 2018 tax filers are still expected to get refunds, the number who owe tax, and in some cases a penalty, is likely to be bigger than in recent years. Additionally, many are likely to be individuals who have always gotten refunds.

Taxpayers who itemized in the past who now choose to take advantage of the increased standard deduction, as well as two-wage-earner households, employees with non-wage sources of income and those with complex tax situations, are at most risk of having too little tax withheld from their pay, according to the IRS. This is especially true if they didn’t update their withholding in 2018, the IRS reports.

Unexpected Impact

In addition, various financial transactions, including those occurring late in the year, can often have an unexpected tax impact. Examples include: year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, real estate or other property sold at a profit. For anyone at risk for a tax-time surprise, making an estimated tax payment soon is the fastest and easiest solution, the IRS suggests.

Form 1040-ES, available on IRS.gov, includes a helpful worksheet for calculating the right amount to pay. This form also includes a rundown of key tax changes and the federal income tax rate schedules for 2018.

A companion publication, Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, that may be helpful to those who have dividend or capital gain income, owe alternative minimum tax or self-employment tax, or have other special situations, the IRS reports.

The quickest and easiest way to make an estimated tax payment is to do it electronically using IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS).

For information on other payment options, visit IRS.gov/payments. If paying by check, be sure to make the check payable to the “United States Treasury.”

Start Early

Though it’s too early to file a 2018 return, it’s never too early to at least begin working on them. Starting now may prove to be a good idea since most tax filers could face revised tax rates and an altered array of deductions and credits, the IRS suggests.

The IRS has posted the 2018 Form 1040 and its instructions for those who want to get started now versus waiting until the last minute. Many supplemental forms and schedules have also been posted with others being added daily.

Two other useful resources the IRS suggests are Publication 5307, Tax Reform: Basics for Individuals and Families, and Publication 5318, Tax Reform What’s New for Your Business. For other tips and resources, check out the Get Ready page on IRS.gov.

 

By |2019-01-05T16:17:57+00:00January 8th, 2019|Finance|Comments Off on Make an Estimated Tax Payment Now to Avoid Tax-time Shock