Estimated Taxes - What Are They Good For?

What is the most significant date in the tax year? Just about everyone would say April 15 because that is the day we all have to file our individual returns. While it can definitely be a stressful time, it isn't the only tax date of significance. Instead, estimated taxes are something many of us have to consider.

The truth of the matter is you are not supposed to pay in a bunch of money to the IRS every April. Instead, our system is supposed to be a "tax as you go" system. This means you are supposed to be paying throughout the year as you make money. The estimated tax payment system is designed to help you do this. Generally, you are required to pay estimated taxes if your withholding doesn't cover 90 percent of your total tax liability.

There are technical rules you can use to determine how much you need to pay and when. I don't follow them. Instead, I keep a running guesstimate of how much I've made and make payments accordingly. The advantage of this approach is the money goes in when I have it instead of when I have to pay. If I pay through the year, I don't have to sweat April 15 rolling around and finding out I owe $10,000. It has happened before and was very unpleasant.

My suggestion to sole proprietors and people who have to deal with estimated taxes is to stay on top of payments. It is tempting to not make them. Taking this approach is a kin to digging your own grave. Before you know it, April will come around and you will be up to your eyeballs in taxes. It happens year after year to millions of people.

Taxes are never a fund subject to deal with. That being said, half the battle is easily staying on top of them during the year. It can be difficult when the sun is out and the days are warm. Take the time and make the effort, however, and your Aprils will be far less stressful.

Richard A. Chapo writes about tax debt relief issues involving the treasury department and state tax agencies as well as other tax subjects for BusinessTaxRecovery.com.