If you remember back to your school days when you had to draw a Venn diagram to compare and contrast different things, you might be glad to know that this concept has a real-world use. You can take this same comparison method and apply it to your personal and business taxes today. There are a few similarities between these two types of IRS tax responsibilities, but there are certainly some notable differences. One of these involves the payment of estimated taxes, which are due today, Jan. 15, 2014. So this begs the question: do you owe estimated taxes today?
When estimated taxes are due
Generally speaking, small business owners and other individuals are on the hook for paying estimated taxes throughout the year on a quarterly basis. January 15th is one of these deadlines, along with April 15th, June 15th, and September 15th. The January 15th deadline is intended to cover the taxes owed for the fourth and final quarter of the year, which would be for the fourth quarter of 2013 from October through December in this case.
Who owes estimated taxes?
The concept of estimated taxes goes back to one of the words in this term – estimated. These taxes are levied on small business owners, 1099 independent contractors, and others who do not have taxes withheld from their various forms of income. As such, these tax payments made to the IRS are more of an estimation of what someone would owe rather than a precise amount that would otherwise be withheld from a W-2 paycheck based on its amount, such as from an employer that has an employee on its payroll. The basic group of taxpayers who owe estimated taxes includes those who have income outside of wages or salaries. This includes Schedule C self-employment income, capital gains, interest, and dividends.
Higher tax rates for today’s deadline
Business accounting experts say today’s deadline could take a bigger bite out of taxpayers’ bank accounts than in previous years – particularly those who are high income earners – due to several tax hikes and other changes that were implemented for tax year 2013. There is now the top income tax bracket of 39.6%, which is higher than the former 35% rate. The top capital gains and dividends tax rate of 20% is also up from the previous 15% rate. In addition, there is an extra 3.8% health care law tax on net investment income, a 0.9% Medicare tax on wages, and the return of phase-outs of certain itemized deductions and personal exemptions.
If you owe estimated taxes today, they should be in to the IRS on time. Otherwise, you may be required to pay a larger amount when April 15th rolls around. You could also be on the hook for late payment penalties. There are some options on making these quarterly payments all at once every year, but be sure to check with your accountant to ensure you are covering all the bases and staying compliant with the IRS.
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Image credit: The image of the Form 1040-ES logo is used with permission via the Creative Commons license through Flickr.