mind that if you do not pay enough by the due date of each
payment period you may be charged a penalty even if you are due a refund
when you file your tax return.
If you are filing as a sole proprietor, partner,
S corporation shareholder, and/or a self-employed individual,
you generally have to make estimated tax payments if you expect
to owe tax of $1,000 or more when you file your return. If you are filing as a corporation you generally
have to make estimated tax payments for your corporation if you
expect it to owe tax of $500 or more when you file its return.
You do not have to pay estimated tax for the
current year if you had no tax liability for the prior
year, you were a U.S. citizen or resident for the whole year and your prior
tax year covered a 12 month period. When figuring your estimated tax for the current
year, you can use the worksheet in Form 1040-ES to figure your
estimated tax. You should always use your prior year's federal tax return as
a guide. Remember that it may be helpful to use your income, deductions, and
credits for prior year as a starting point.
If you do not pay enough tax by the due date of
each of the payment periods, you may be charged a penalty even
if you are due a refund when you file your income tax return. If you did not pay enough tax throughout the
year, either through withholding or by making estimated tax
payments, you may have to pay a penalty for underpayment of
estimated tax. Generally, most taxpayers will avoid this penalty
they owe less than $1,000 in tax after subtracting their withholdings and
credits, if they paid at least 90% of the tax for the current year, or if
they paid 100% of the tax shown on the return for the prior year, whichever
is less.
The penalty for underpayment of estimated tax may
be waived if the failure to make estimated payments was caused
by a casualty, disaster, or other unusual circumstance and it would be
inequitable to impose the penalty. The penalty may also be waived if you
retired (after reaching age 62) or became disabled during the tax year for
which estimated payments were required to be made or in the preceding tax
year, and the underpayment was due to reasonable cause and not willful
neglect.
Refund Returns
When taxpayers are entitled to refunds, Authorized IRS
e-file Providers (Providers) should inform them that they have several
options. An individual income tax refund may be applied to next year’s
estimated tax; received as a Direct Deposit or paper check; or be split so
that a portion is applied to next year’s estimated tax and the rest received
as a Direct Deposit or paper check.Providers must not direct the
payment (or accept payment) of any monies issued to a taxpayer client by the
government in respect of a Federal tax liability to the Provider or any firm
or entity with which the Provider is associated. The IRS may sanction
Providers and individuals who direct or accept such payment.Circular 230 sets forth that endorsing or
otherwise negotiating any check (including directing or accepting payment by
any means, electronic or otherwise, into an account owned or controlled by
the Provider or any firm or other entity with which the practitioner is
associated) is disreputable conduct.
Taxpayers often elect the Direct Deposit option because it is the fastest
way of receiving refunds. Providers must accept any Direct Deposit election
to qualified accounts in the taxpayer’s name at any
