Payment of Advance Tax
Advance
tax is a system where taxpayers pay a portion of their estimated tax liability
before the end of the financial year. Payments are typically made in four instalments:
15% by June 15, 45% by September 15, 75% by December 15, and the remaining
amount by March 15 of the following year. Here are some key points regarding
advance tax payments:
Who Needs to Pay Advance Tax?
- Individuals,
including sole proprietors, partners, and S corporation shareholders, must
pay advance tax if they expect to owe $1,000 or more when filing their
return.
- Corporations are
required to pay advance tax if they expect to owe $500 or more.
How to Calculate Advance Tax
- Use your expected
adjusted gross income, taxable income, taxes, deductions, and credits for
the year.
- You can refer to your
prior year's federal tax return as a guide to estimate your current year's
tax liability.
Payment Methods
- Payments can be made
online, by phone, or through the IRS2Go app.
- The Electronic
Federal Tax Payment System (EFTPS) is recommended for making federal tax
payments, including advance tax.
Penalties for Underpayment
- If you do not pay
enough tax throughout the year, you may incur a penalty for underpayment
of estimated tax.
- To avoid penalties,
ensure you pay at least 90% of the current year's tax or 100% of the
previous year's tax, whichever is smaller.
Due Dates for Payments
- Advance tax payments
are divided into four payment periods, each with specific due dates.
- If a due date falls
on a weekend or holiday, the payment is considered on time if made the
next business day.
Adjustments and Recalculations
- If your income
fluctuates, you can annualize your income and make unequal payments to
potentially lower penalties.
- If you estimate your
earnings too high or too low, you can refigure your estimated tax using
the Form 1040-ES worksheet for the next quarter.
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