Estimated Tax Payments Due April 17th

Independent contractors and other self-employed people will need to make their first estimated tax payment on or before April 17th, 2006. Here's what you need to know about estimated taxes.

First, learn how to accurately calculate your estimated tax payments. It's pretty easy, and doesn't take a lot of time to figure out.

Second, you will need to project what your 2006 tax liability will be, more or less. This will result in better figures for her estimated payments.

Third, if you haven't filed your taxes yet, one of the things you can do is use some or all of her tax refund to pay ahead your estimates. This is what I do, and it's even easier than making quarterly payments! All you need to do is apply your refund to your 2006 estimated tax on Line 74 of Form 1040. Let's say your 2005 refund is $2,000, and you expect to pay $1,500 in estimated payments. You can apply $1,500 to your 2006 estimates, and receive the remaining $500 as a refund now.

Fourth, you will need to make sure you have paid in at least 100% of your 2005 tax or at least 90% of your 2006 tax in order to avoid the underpayment penalty. So look at your Form 1040 Line 63 (total tax), and divide that figure by four. That should be your minimum estimated tax payment for this year.

I also suggest that your sign up for EFTPS, the Treasury Department's online bill pay service. It takes a couple of weeks to get registered with EFTPS, since the Treasury Department must mail you a confirmation code before you can use the online service. But once you are set up on the system, it is very easy to schedule estimated payments for automatic withdrawal from a checking account. I use the automatic scheduling feature to make monthly payments from my checking account.

Additional Resources:

• How To Pay Estimated Taxes
• Estimated Tax Payment Vouchers and Instructions from the IRS (Form 1040-ES)
• 2006 Tax Calendar
• Penalty for Underpayment of Estimated Tax
• Electronic Federal Tax Payment System