The final estimated tax payment for 2008 is due January 15th. This year might be a little unusual because there have been so many tax and economic changes. Before you pay your final payment, here are some of the items to look for.
First of all, the estimated tax payment is just that – the estimated amount that you expect to apy for your taxes. If you don’t pay enough, you’ll have penalties and interest. And if you severely underpay, it could even mean that your extensions are denied and you’ve committed fraud. On the other hand, if you overpay, you have to file your return to get your money back and when you finally do get it, there will be no interest earned on the refund.
You will have paid enough estimated tax payments if either:
(1) You owe less than $1,000 in taxes, or
(2) You pay at least 90% of the tax for the current year or 100% of tax for the prior year (whichever is less).
Generally, paid preparers take the easy route and calculate the estimated tax payments based on 100% of last year’s taxes. And unfortunately most taxpayers means that there has been a lot of forethought given and are shocked to find out they either owe a bunch or have a big tax return come tax time.
Generally, most taxpayers will have paid enough tax to avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.