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scheduling of estimated tax payments wrt. income

I've never needed to do estimated tax before. This seems like a really basic question, but I can't quite seem to get an answer from the instructions ...

I know the payments need to be made quarterly and "on time" (basically within 15 days of quarter's end).

But must they (or can they) be four EQUAL payments, regardless of how income is spread out during the year ? For example, if most of my income occurs in the first quarter (for example, a big consulting contract), is it ok to spread my estimated tax payments into 4 equal installments, one each quarter ? What about the flip side, where one gets a big income the LAST quarter of the year, and had no way of knowing the three earlier quarters' payments needed to be larger ?

Thanks, John

Thanks, John
Reply to
JGE
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"JGE" wrote

The IRS gets one number at the end of the year, and for all they know you earned it ratably over the year. They'll be looking for equal payments. If they aren't equal, you use 2210, Schedule A to allocate the income and the resulting taxes into quarters.

Reply to
Paul Thomas, CPA

As long as you pay 1/4 of either last yer's tax, or 90% of the current year final tax each quarter, on time, you'll have no penalty Those and oweing less than $1,000 are called "safe Harbors". If you pay more in early quarters you can pay less in later quarters. If you pay less in early quarters you'll have a penalty.

If you income is more in early quarters, ignore it because the IRS looks at your total taxes for the year when figuring the 90% of current year's tax. If your income is more in later quarters you can use the Annualized Income Method to tell the IRS that your installments were based on the amount of your taxes each quarter using that Method. This could eliminate the penalty for NOT paying evenly.

SO, You don't have to pay evenly or even on time, but if you're payments are late or not equal you can't use the "Short Method" to figure any penalty, and if they don't meet any of the "safe harbors" you willl incurr a penalty, and the AI Method might reduce or eliminate that penalty. ed

Reply to
ed

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