Tax Trick: How to Outsmart the IRS and Save Big

There’s another ‘tricky’ tax deadline on April 15. Here’s how to avoid a penalty, experts say

Estimated tax payments are required for income earned beyond regular employment, such as self-employment, gig work, investments, and retirement distributions.

These payments help you avoid penalties if you owe more than $1,000 in taxes at the end of the year.

For 2024, the first estimated tax payment deadline is April 15th, coinciding with the federal tax filing deadline.

To meet the “safe harbor” rules and avoid penalties, you can either: 1.

Pay at least 90% of your current year’s estimated tax liability, or 2.

Pay 100% of your previous year’s tax liability (whichever amount is smaller).

For instance, if you owed $20,000 in taxes for 2023, you would need to pay $5,000 each quarter under the safe harbor rule.

If your adjusted gross income (AGI) was $150,000 or more for the previous year, you must pay 110% of the previous year’s taxes under the safe harbor rule.

You can find your AGI on line 11 of your 2023 tax return.

You can make estimated tax payments online through the IRS website, via IRS Direct Pay, or by mail using the U.S. Department of the Treasury’s Electronic Federal Tax Payment System (EFTPS).

If you choose to pay by mail, it’s recommended that you use certified mail with a return receipt to ensure the payment is made on time.

Remember, estimated tax payments are designed to prevent end-of-year tax surprises and associated penalties.

By making these payments throughout the year, you can avoid interest charges and ensure that you meet your tax obligations.