If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The second quarter due date is now here.
Due date: Thursday, June 15, 2023
While it’s possible you were selected randomly, it’s more likely you were selected for a specific reason. One example might be if your deductions for charitable donations or business expenses were greater than is typical for your income or profession. Before proceeding, try to understand what is being challenged and when you must reply.
You are required to withhold at least 90 percent of your 2023 tax obligation or 100 percent of your 2022 tax obligation.* A quick look at your 2022 tax return and a projection of your 2023 tax obligation can help determine if a payment is necessary. Here are some other things to consider:
- Avoid an underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year.
- W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
- Self-employed workers need to account for FICA taxes. In addition to your income taxes, remember to also account for your Social Security and Medicare taxes. Creating and funding a savings account for this purpose can help avoid a possible cash flow hit each quarter when you pay your estimated taxes.
- Don’t forget state obligations. With the exception of a few states, you are often also required to make estimated state tax payments if you have to do so for your federal taxes. Consider conducting a review of your state obligations to ensure you also comply with these quarterly estimated tax payments.
*If your income is over $150,000 ($75,000 if married filing separate), you must pay 110 percent of your 2022 tax obligation to avoid an underpayment penalty.Analysis: Your chance of being audited rises along with the size of your income. With $200,000 a year in income your chance of being audited nearly doubles (1.01% in FY2016) compared with a person who has half that income. People with more than $10 million in income have a nearly 1-in-5 chance of an audit every year.
Please call any member of our team at 616-458-1835 if you have questions.