As we approach the second-quarter estimated tax deadline for 2024 on June 17, it is essential to remember the significance of making timely payments to avoid penalties imposed by the IRS. These payments are typically required for individuals with income sources that do not have withholdings, such as contract jobs, freelancing, gig economy work, or small business ownership. It is crucial to recognize that quarterly estimated tax payments are not limited to the self-employed or small business owners.
According to certified financial planner Kelly Renner from Life Strategies Financial Partners, individuals are required to make quarterly estimated tax payments if they expect to have at least $1,000 in tax liability on their 2024 return. The deadlines for estimated tax payments in 2024 are April 15, June 17, Sept. 16, and Jan. 15, 2025. Failure to meet these deadlines may result in interest-based penalties, calculated using the current interest rate and balance due.
To avoid penalties for missed estimated tax payments, individuals must adhere to the “safe harbor rules” outlined by the IRS. According to certified public accountant Sheneya Wilson, meeting these rules involves paying at least 90% of the current year’s tax liability or 100% of the previous year’s taxes, whichever amount is smaller. However, the threshold increases to 110% if the adjusted gross income from 2023 was $150,000 or higher. It is important to note that failing to make higher estimated payments may still result in owing taxes for the 2024 tax year.
For individuals expecting significant income growth in 2024, it is advisable to consult with a tax professional for a proper tax plan and projection. This proactive approach can help individuals avoid potential tax liabilities and penalties. Working with a tax professional ensures that individuals are accurately estimating their tax obligations and making the necessary payments on time.
The IRS recommends making estimated tax payments online as it is the most secure, fastest, and easiest method. Individuals can utilize their online account, IRS Direct Pay, or the U.S. Department of the Treasury’s Electronic Federal Tax Payment System (EFTPS) for quick and efficient payments. Maintaining an account on IRS.gov simplifies the payment process and allows individuals to reconcile transactions easily. However, if individuals prefer to mail payments, using certified mail with a return receipt is advisable to ensure proof of an on-time payment.
Making quarterly estimated tax payments in 2024 is essential for individuals with sources of income that do not have withholdings. Adhering to the deadlines, meeting tax liability thresholds, and complying with safe harbor rules can help individuals avoid penalties and ensure timely payment of taxes. By working with tax professionals and utilizing convenient payment options, individuals can effectively manage their tax obligations and plan for potential income growth in the future.