The Strategic Way With Estimated Tax Payments
The last few weeks I have been sharing the details behind my list of 5 Planning Tips for After April 15th.
This week, I'll share the details behind:
Planning Tip #4:
Track your estimated tax payments On the next income tax return you file:
Will you have a refund? Will you owe tax? Are you not sure where you stand?
If you know where you stand, then you are on the track. If you don't know where you stand, then it's time to get on track - even if you won't file your next tax return for another year.
Estimated income tax payments play a key role in knowing where you stand. I usually see this planning done "The Traditional Way" but I like to supercharge the planning with "The Strategic Way."
The Traditional Way
The traditional way estimated tax payments are done is your CPA provides you with vouchers and instructions with your completed tax return. This information covers your payments until your next tax return due date.
So you are set for the year right? Wrong!
The Strategic Way
There are 2 issues with the traditional way.
First, it assumes everything stays the same. If you receive your estimated tax payment information for the year in June, you still have 6 months left in the year. Do you want to make the assumption that nothing will change in those 6 months? (And consider that if you are wrong, you may be subject to underpayment penalties and interest).
Receiving your payment information is a solid starting point. Use this information to mark you calendar with your payment due dates and amounts.
These amounts can change throughout the year so check in with your CPA throughout the year to make sure your estimated tax payments are on track.
Second, the traditional way usually does not provide you with where you stand with your next tax return. Will you owe? Will you receive a refund?
To supercharge your tax strategy and truly take a strategic approach to you estimated tax payment planning, you need the complete picture. Your tax picture is not complete unless you know where you stand with the next tax return you will file.
Here is a rule of thumb
I use Map out all of your tax payments due over the next 12 months. This includes federal and state estimated tax payments due throughout the year, as well as any additional tax payments due when you file your tax returns. Update this schedule monthly and you will always know where you stand with your taxes.
Get started! Here are the next 12 months of federal due dates for the typical individual tax filer:
June 15, 2010 Estimated tax payment due for 2010 tax year
September 15, 2010 Estimated tax payment due for 2010 tax year
January 15, 2011 Estimated tax payment due for 2010 tax year
April 15, 2011 Tax payment due with tax return or extension for 2010 tax year Estimated tax payment due for 2011 tax year
June 15, 2011 Estimated tax payment due for 2011 tax year
Add your specific state information and your federal and state amounts and you are set for the next 12 months. Then be sure to update this list each month.
And be sure to do this same schedule for your entities that are subject to income tax.
by: Tom Wheelwright
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