As we approach the second-quarter estimated tax deadline for 2024 on June 17, it is crucial to understand the significance of making timely payments to avoid penalties. The IRS mandates that individuals who earn income without withholdings, such as from contract jobs, freelancing, gig economy work, or small businesses, must make quarterly estimated tax payments. However, it is essential to note that these payments are not exclusive to self-employed individuals or small business owners.
There are various scenarios where individuals may need to make quarterly tax payments. For instance, if you receive a large distribution from a pretax individual retirement account or generate substantial profits from selling an asset, you may be required to make quarterly payments. Certified financial planner Kelly Renner emphasizes the importance of making quarterly estimated tax payments if you expect to have a tax liability of at least $1,000 on your 2024 tax return.
For the 2024 tax year, the estimated tax deadlines 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 the balance due. To avoid penalties for missed estimated tax payments, it is crucial to adhere to the “safe harbor rules” established by the IRS. By paying at least 90% of the current year’s tax liability or 100% of the previous year’s taxes (whichever is smaller), individuals can prevent penalties.
Certified public accountant Sheneya Wilson highlights the significance of meeting the safe harbor rules to avoid penalties for missed estimated tax payments. However, it is essential to consider that the threshold for safe harbor increases to 110% if the adjusted gross income from 2023 was $150,000 or higher. Individuals can find their adjusted gross income on line 11 of Form 1040 from the 2023 tax return.
If individuals anticipate significant income growth in 2024, it is advisable to consult with a tax professional for proper tax planning and projections. Working with a tax professional can help create a comprehensive tax plan that accounts for potential changes in income and ensures compliance with tax obligations.
The IRS recommends making estimated tax payments online for the most secure, fastest, and easiest way to fulfill tax obligations. 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 seamless payments. Creating an account on IRS.gov simplifies the payment process and enables individuals to reconcile transactions effortlessly. However, if preferential, individuals can choose to mail payments by opting for certified mail with a return receipt to provide proof of on-time payment.
Understanding the requirements for second-quarter estimated tax payments for 2024 is essential for individuals who earn income without withholdings. By adhering to deadlines, meeting safe harbor rules, and consulting with tax professionals when needed, individuals can navigate tax obligations effectively and avoid potential penalties. Making timely and accurate estimated tax payments ensures compliance with IRS regulations and fosters financial stability in the long run.