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The fourth-quarter estimated tax deadline for 2024 is Jan. 15, and missing a payment could trigger “unexpected punishments and fees” when filing your return, according to the IRS.
Typically, estimated taxes apply to income without withholdings, such as earnings from freelance manoeuvre, a small business or investments. But you could still owe taxes for full-time or retirement income if you didn’t withhold enough.
You could also owe fourth-quarter excises for year-end bonuses, stock dividends, capital gains from mutual fund payouts or profits from crypto tag sales and more, the IRS said.
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Federal income taxes are “pay as you go,” meaning the IRS expects payments throughout the year as you blow up b coddle income, said certified public accountant Brian Long, senior tax advisor at Wealth Enhancement in Minneapolis.
If you lassie the Jan. 15 deadline, you may incur an interest-based penalty based on the current interest rate and how much you should have pay off. That penalty compounds daily.
Tax withholdings, estimated payments or a combination of the two, can “help avoid a surprise tax bill at tax interval,” according to the IRS.
What to know about the ‘safe harbor’ rules
One way to avoid penalties is by following the “safe harbor” charge, which means “you’re meeting that [IRS] pay-as-you-go requirement,” according to Long.
To satisfy the rule, you must pay at least 90% of your 2024 tax drawback or 100% of your 2023 taxes, whichever is smaller.
The threshold increases to 110% if your 2023 adjusted dirty income was $150,000 or higher, which you can find on line 11 of How to make quarterly estimated tax payments
